Reaganomics Flashcards
What is Reaganomics?
Reaganomics refers to the economic policies of Ronald Reagan, the 40th U.S. president, serving from 1981–1989. His economic policies called for widespread tax cuts, decreased social spending, increased military spending, and the deregulation of domestic markets. These policies were introduced in response to a prolonged period of economic stagflation that began under President Gerald Ford in 1976.
Summarization of Reaganomics
Reaganomics was regarded as a common-sense approach to the perception of stagflation and over-regulation that prevailed at the end of the Carter presidency. By reducing government spending and taxes, and making it easier to do business, President Reagan hoped to incentivize economic activity and reduce dependence on the government.
These policies garnered reduced inflation, lower unemployment, and an entrepreneurial revolution that later became synonymous with the 1980s. However, federal deficits grew, and the increased wealth gap increased the divide between the rich and the poor.
What was Reaganomics influenced by?
Reaganomics was influenced by the trickle-down theory and supply-side economics. Reaganomics was based on the Laffer Curve.
What Were the Goals of Reaganomics?
Reaganomics sought to reduce the cost of doing business, by reducing tax burdens, relaxing regulations and price controls, and cutting domestic spending programs. Reagan also sought to reduce inflation by tightening the money supply.
Understanding Reaganomics
The term Reaganomics was used by both supporters and detractors of Reagan’s policies. Based on the principles of supply-side economics and the trickle-down theory, Reaganomics proposed that decreases in taxes, especially for corporations, stimulate economic growth. If the expenses of corporations are reduced, the savings then “trickle down” to the rest of the economy, spurring overall growth.
What Were the Major Parts of Reaganomics?
The four main pillars of Reaganomics were tax cuts, deregulation, cuts to domestic social spending, and reducing inflation.
What was the objective of Reaganomics
As Reagan began his first term, the country suffered through several years of stagflation, where high inflation was accompanied by high unemployment. To fight high inflation, the Federal Reserve Board increased the short-term interest rate, reaching a peak in 1981. Reagan proposed a four-pronged economic policy intended to reduce inflation and stimulate economic and job growth:
What reductions did Reagan implement?
Reduce government spending on domestic programs
Reduce taxes for individuals, businesses, and investments
Reduce the burden of regulations on business
Support slower money growth in the economy
Which domestic program spendings did Reagan administration cut?
To curtail government intervention, Reagan cut or reduced funding to multiple domestic welfare programs, including Social Security, Medicaid, Food Stamps, education, and job training programs. In a deeply controversial move, he also ordered the Social Security Administration to tighten enforcement on disabled recipients, ending benefits for more than a million recipients.
How much did Reagan increase the defense spending by?
Though Reagan ordered government spending cuts to domestic programs, he increased defense spending by 35% to achieve “peace through strength” in his opposition to Communism and the Soviet Union.
How did Reagans tax rate cut affect unemployment?
In the first year of his presidency, Reagan lowered taxes significantly. Income taxes on the top marginal tax bracket dropped from 70% to 50% in 1982, along with sharp cuts to corporate and estate taxes.
In 1986, GDP stood at 3.5%, but the unemployment rate was at a high of 6.6%. Reagan cut the tax rate to 38.5% in 1987 and unemployment fell to 5.7%.
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The goal of these reforms was not only to reduce tax burdens but also to simplify the tax code. Some of Reagan’s reforms eliminated write-offs, exceptions, and other loopholes for favored businesses. They also changed the way companies accounted for expenditures which encouraged them to invest in equipment.
Did Reagans reduce enforcement on the Clean Air Act?
Reagan removed price controls on oil and gas, reduced restrictions on the financial services industry, and relaxed the enforcement of the Clean Air Act. The Department of the Interior also opened large areas of public land for oil drilling.
Why did Reagan encourage the Federal Reserve to tighten their money supply and raise interest rates?
As president, Reagan encouraged the Federal Reserve to tighten the money supply as Federal Reserve Chairman Paul Volcker had steadily raised the federal funds rate to 20% by 1980 and these high-interest rates helped end double-digit inflation.
The Reaganomics monetary policy was developed to complement the Federal Reserve’s policy of raising interest rates to reduce borrowing and spending.
Why do Advocates of President Reagans like his polices?
Advocates of President Reagan’s policies cite “from December 1982 to June 1990, Reaganomics created over 21 million jobs—more jobs than have been added since,” wrote Arthur Laffer, whose work heavily influenced Reagan’s tax cuts. The top marginal tax rate on individual income was slashed from 70% to 28% and the corporate tax rate was reduced from 48% to 34%. Inflation was reduced to 4%, and the unemployment rate fell below 6%.
What happened in 1982 and 2000 to the Dow Jones Industrial Average ?
Between 1982 and 2000, the Dow Jones Industrial Average (DJIA) grew nearly 14-fold, and the economy added 40 million new jobs. However, Nobel laureate Paul Krugman downplayed the success of Reagan’s policies. “Yes, there was a boom in the mid-1980s, as the economy recovered from a severe recession,” Krugman wrote in the New York Times. “But while the rich got much richer, there was little sustained economic improvement for most Americans. By the late 1980s, middle-class incomes were barely higher than they had been a decade before and the poverty rate had risen.”
