Economic Policy Flashcards
Immediate action
Reduced Gov’t involvement and cut taxes
Influenced by ‘supply side’ economics: increase production, encourage people by cutting taxes, weaken unions
3 days following inauguration
Sack WH members Federal Gov't hiring freeze Froze office furnishing and equipment Cut travel expenses 15% Made him look attractive but very little financial benefit
Reaganomics
US owed a lot of money since Vietnam- wanted to cut taxes to reduce
1) cut federal deficit
2) personal and business tax reduction
3) deregulation
4) planned control of money supply
Getting legislation passed
1st time in decades: republican majority in senate and almost republican majority in senate and almost in House of Representatives
Omnibus Reconciliation Act
Cut federal spending, passed with some revision 1981
Tax legislation harder- made personal tax reduction from 30% to 25%
Economic Recovery Tax Act 1981
ERTA
Cut income tax
FRB
Federal Reserve Board
Put pressure on to put tight restrictions on money supply
Unlike other govt, administration didn’t ask FRB to lift restrictions once unemployment decreased
What did money supply restrictions lead to?
Sharp rise in interest rates
Hurt industries that bought supplies on credit (eg farming/ car) or had loans with long payback period (eg construction)
Recession that was present when Reagan was inaugurated deepened
Unsuccessful in ST yet unemployment fell in LT after initial spike
Unreliability of unemployment figures
Exclude those counted as ‘unemployable’
Not earning at full capacity
Productivity and investment
Productivity spiked in 1983 More save and invest Late 80s: people lost savings due to collapse 1987 Stockmarket Crash Rich do better on unearned income
Deficit
Reduction of was one of reagans most notable failures
1st time US became burrowing nation rather than lending
Reduced govt spending on the poor/ scholarships- spent vast amount on defence (Cold War)
