Supply and demand are the most basic forces governing the economy. The action of supply and demand determines the price of goods and controls supply and demand, but largely affects the operation of the entire economy. Since the growth of the modern economy, there have been countless economic fluctuations, and there has been demand and supply at the root. However, the main problem during most economic fluctuations was the lack of demand. On the contrary, oversupply was the cause of the economic recession.
If supply exceeds demand, prices fall, which lowers corporate profits. Then companies go bankrupt and unemployment rises. The Great Depression of the 1930s is a case in point. The response to this recession is to increase demand. Today, governments use fiscal and financial policies to boost demand in a very familiar manner during a demand-deficient recession.
Looking back on the long period, oversupply was mainly a problem, but there were cases of a recession due to a lack of supply. This is the case with the Great Depression in the 1970s. This is a situation we commonly call the “oil wave,” and it is a time when the world has fallen into a slump due to the sudden rise in oil prices. Oil prices skyrocketed as oil-producing countries advocated resource nationalism, freeing themselves from interference from Western oil giants and controlling oil prices. As a result, the value chain led to an increase in the price of all products, driving the global economy to fear of recession. Unlike the recession caused by lack of demand in the past, stagflation accompanied by inflation appeared despite the economic recession.
