Impact of policies on American people

Question 1

Did the policies encourage people to save and invest?

Answer 1

• 1982 - America was coming out of its recession and more people were investing
• Policies to cut down the ‘big government’ led to deregulation in the financial sector
• Financial organisations took increasingly dangerous risks to win more customers
• Personal savings and investments that the policies had been designed to encourage took place in a financial environment that was increasingly unsafe
• Stock market crash of 1987 - businesses and individuals suffered, but not on the scale of the Great Depression

Question 2

Did the policies reduce the deficit?

Answer 2

• In 1980, the federal deficit was $59bn, costing 9% of federal spending - in 1983, it was $208bn, costing 14% of federal spending in loan interest payments
• Increasingly funded by borrowing from abroad
• USA was, for the first time, a borrowing nation
• Failure was partly because of Reagan’s determination to cut taxes
• Reagan always said that increased defence spending was necessary
• In 1980, human resources took 28% of federal spending; by 1987, it was 22%
• Defence spending in the same period rose from 23% to 28%