History Paper 1F, In search of the
American Dream, Section C
interpretations; The Reagan Presidency
5.1 The effect of Reagan's economic
policies
What economic problems did Reagan inherit?
-Inflation reached double digits, peaking at around 13.5% in Carter's final year as
president.
-High Unemployment, at around 7%, significantly higher than the post-war average.
-Stagnation and Recession, economy in stagflation (stagnation+inflation), general lack
of economic confidence.
-Energy Crisis, US lost its self-sufficiency in energy production, increasing dependence
on foreign oil. By 1979, 50% of the nation's gas stations had no fuel, and Americans
were paying 30% more for heating oil and gasoline.
How did Reagan plan to manage the federal deficit?
-Cutting the Federal Deficit, from 22% of GDP in 1981 to 19% by 1986, requiring major
spending cuts, particularly in welfare programs for the most vulnerable in society
How did Reagan plan to encourage economic growth?
-Tax Cuts, ERTA 1981 reduced income tax rates by 23% over three years, highest
income tax rate dropped from 70% to 50%, while the lowest fell from 14% to 11%.
-Deregulation, reducing government intervention in business by removing regulations on
industries like finance, transportation, and communications to encourage growth.
How did Reagan plan to fight inflation?
-Control of the Money Supply, to fight inflation, Reagan supported tighter monetary
policy by the Federal Reserve, limiting the amount of money in circulation.
-He encouraged them to tighten control on the money supply, which they did more
asked for, Reagan would maintain this control even when unemployment rose.
What negative impact did the Federal Reserve Board's tightening of the money supply
have upon unemployment and business?
-Raising interest rates to curb inflation, made borrowing more expensive, leading to a
decline in investment and consumer spending.
,-The economy entered a severe recession in 1981-1982, unemployment rose to 10.8%,
the highest since the Great Depression.
-Small businesses and industries dependent on credit suffered the most, eg
construction and auto industries collapsed, leading to layoffs and business closures.
-The "Rust Belt" hit hard as industries already struggling against foreign competition
found it even harder to survive.
What implications did raising interest rates have upon the federal deficit?
-While inflation was controlled, high interest rates made federal borrowing more
expensive.
-Combined with Reagan's tax cuts and increased defence spending, this led to massive
deficits and a tripling of the national debt
What positive impact did the Federal Reserve Board's tightening of the money supply
have upon the economy?
-By keeping the money supply tight, inflation fell from 13.5% in 1980 to 4.7% in 1988.
-After the recession, confidence returned to businesses and investors.
-Lower inflation helped long-term economic stability, and GDP grew by 11% by 1984,
leading to strong economic expansion in the mid-to-late 1980s.
What impact did Reaganomics have upon economic growth and inflation?
-Real GNP grew by 11% by the end of 1984, contributing to the longest period of
peacetime economic growth in US history
-Inflation dropped from 13.5% in 1980 to 6.2% in 1982, 4.7% in 1988, never reaching
double digits again during his presidency
What impact did Reagan's first budget the ORA 1981 have?
-Aimed to cut $35 billion from federal spending, mostly by reducing welfare and social
programs
e.g AFDC cut by 13% between 1982-85, food stamps were reduced by 13%, child
nutrition programs by 28%, and Medicaid (support for the elderly and poor) by 5%.
-This contributed to a rise in poverty and homelessness, as fewer people had access to
government aid.
What impact did the ERTA 1981 have?
-Was passed alongside ORA and cut taxes by 23% over three years.
-The highest income tax bracket dropped from 70% to 50%, benefiting wealthy
Americans and businesses.
-Short-term economic growth increased, and by 1984, real GNP grew by 11%, and
inflation dropped from 13.5% (1980) to around 5%.
How did Reagan's policies impact unemployment?
-Rose from 7.1% '80, to 9.6% in 1983 but then began falling after this peak, reaching
5.5% by 1988
How is Reagan's record on reducing unemployment misleading?
-Many of the new jobs created were part-time or temporary jobs, offering lower wages
and fewer benefits
, -By 1988, 34.5% of the population was not included in unemployment figures as many
were in temporary, low wage jobs
What impact did Reagan's economic policies have upon productivity?
-Overall, deregulation and tax cuts were successful in boosting productivity measured in
GNP, real GNP grew by an average of 3.6% per year throughout his administration
-Measured in terms of output per worker, fluctuates and is less consistent but still
positive compared to previous administrations, aside from 1982
Did Reaganomics encourage people to save and invest?
-In '82 as economy comes out of recession and business begins doing well again,
people began to save and invest
-Stock market crash and crisis in savings and loan industry in late 1980s, discouraged
saving and investment
-The personal savings rate dropped from around 10% in the late 1970s to just 5.5% by
the late 1980s
-Lower taxes on income and capital gains encouraged spending rather than saving.
What impact did deregulation have upon the financial markets?
-Tax cuts and deregulation encouraged financial speculation as more invested in
stocks, leading to a stock market boom in the mid-1980s.
-Deregulation in the financial sector meant increased competition between businesses
that took greater risks to win customers, breeding an increasingly unsafe financial
environment
-Came to a head in the late 1980s as people lost both savings and investments during a
crisis in the savings and loans industry (which was only stopped with government
intervention) and the stock market crash of 1987
How did Reagan's economic policies impact upon income inequality?
-Increased it as wealth became concentrated at the top, with the number of billionaires
rising from <10 in 1981 to 52 by 1988, while many Americans saw little benefit
-Whilst tax cuts were intended to stimulate growth, they disproportionately benefited the
wealthy
How did Reagan's economic policies impact upon workers?
-Opposition to the federal minimum wage and obstruction to congressional attempts to
increase it meant it remained at $3.35 throughout his administration
-Opposition to labour unions and the weakening of their bargaining power also meant
wages stagnated for ordinary workers , eg 1981, 13k air traffic controllers on strike,
Reagan said their strike was illegal and fired them all
What impact did Reagan's economic policies have upon the federal deficit?
-Reaganomics resulted in a substantial increase despite his campaigning to reduce it,
from $997b (1981) to $2.85t (1989)
-Cause by significant tax cuts that reduced federal revenues without producing the
anticipated business boom, national debt triples
American Dream, Section C
interpretations; The Reagan Presidency
5.1 The effect of Reagan's economic
policies
What economic problems did Reagan inherit?
-Inflation reached double digits, peaking at around 13.5% in Carter's final year as
president.
-High Unemployment, at around 7%, significantly higher than the post-war average.
-Stagnation and Recession, economy in stagflation (stagnation+inflation), general lack
of economic confidence.
-Energy Crisis, US lost its self-sufficiency in energy production, increasing dependence
on foreign oil. By 1979, 50% of the nation's gas stations had no fuel, and Americans
were paying 30% more for heating oil and gasoline.
How did Reagan plan to manage the federal deficit?
-Cutting the Federal Deficit, from 22% of GDP in 1981 to 19% by 1986, requiring major
spending cuts, particularly in welfare programs for the most vulnerable in society
How did Reagan plan to encourage economic growth?
-Tax Cuts, ERTA 1981 reduced income tax rates by 23% over three years, highest
income tax rate dropped from 70% to 50%, while the lowest fell from 14% to 11%.
-Deregulation, reducing government intervention in business by removing regulations on
industries like finance, transportation, and communications to encourage growth.
How did Reagan plan to fight inflation?
-Control of the Money Supply, to fight inflation, Reagan supported tighter monetary
policy by the Federal Reserve, limiting the amount of money in circulation.
-He encouraged them to tighten control on the money supply, which they did more
asked for, Reagan would maintain this control even when unemployment rose.
What negative impact did the Federal Reserve Board's tightening of the money supply
have upon unemployment and business?
-Raising interest rates to curb inflation, made borrowing more expensive, leading to a
decline in investment and consumer spending.
,-The economy entered a severe recession in 1981-1982, unemployment rose to 10.8%,
the highest since the Great Depression.
-Small businesses and industries dependent on credit suffered the most, eg
construction and auto industries collapsed, leading to layoffs and business closures.
-The "Rust Belt" hit hard as industries already struggling against foreign competition
found it even harder to survive.
What implications did raising interest rates have upon the federal deficit?
-While inflation was controlled, high interest rates made federal borrowing more
expensive.
-Combined with Reagan's tax cuts and increased defence spending, this led to massive
deficits and a tripling of the national debt
What positive impact did the Federal Reserve Board's tightening of the money supply
have upon the economy?
-By keeping the money supply tight, inflation fell from 13.5% in 1980 to 4.7% in 1988.
-After the recession, confidence returned to businesses and investors.
-Lower inflation helped long-term economic stability, and GDP grew by 11% by 1984,
leading to strong economic expansion in the mid-to-late 1980s.
What impact did Reaganomics have upon economic growth and inflation?
-Real GNP grew by 11% by the end of 1984, contributing to the longest period of
peacetime economic growth in US history
-Inflation dropped from 13.5% in 1980 to 6.2% in 1982, 4.7% in 1988, never reaching
double digits again during his presidency
What impact did Reagan's first budget the ORA 1981 have?
-Aimed to cut $35 billion from federal spending, mostly by reducing welfare and social
programs
e.g AFDC cut by 13% between 1982-85, food stamps were reduced by 13%, child
nutrition programs by 28%, and Medicaid (support for the elderly and poor) by 5%.
-This contributed to a rise in poverty and homelessness, as fewer people had access to
government aid.
What impact did the ERTA 1981 have?
-Was passed alongside ORA and cut taxes by 23% over three years.
-The highest income tax bracket dropped from 70% to 50%, benefiting wealthy
Americans and businesses.
-Short-term economic growth increased, and by 1984, real GNP grew by 11%, and
inflation dropped from 13.5% (1980) to around 5%.
How did Reagan's policies impact unemployment?
-Rose from 7.1% '80, to 9.6% in 1983 but then began falling after this peak, reaching
5.5% by 1988
How is Reagan's record on reducing unemployment misleading?
-Many of the new jobs created were part-time or temporary jobs, offering lower wages
and fewer benefits
, -By 1988, 34.5% of the population was not included in unemployment figures as many
were in temporary, low wage jobs
What impact did Reagan's economic policies have upon productivity?
-Overall, deregulation and tax cuts were successful in boosting productivity measured in
GNP, real GNP grew by an average of 3.6% per year throughout his administration
-Measured in terms of output per worker, fluctuates and is less consistent but still
positive compared to previous administrations, aside from 1982
Did Reaganomics encourage people to save and invest?
-In '82 as economy comes out of recession and business begins doing well again,
people began to save and invest
-Stock market crash and crisis in savings and loan industry in late 1980s, discouraged
saving and investment
-The personal savings rate dropped from around 10% in the late 1970s to just 5.5% by
the late 1980s
-Lower taxes on income and capital gains encouraged spending rather than saving.
What impact did deregulation have upon the financial markets?
-Tax cuts and deregulation encouraged financial speculation as more invested in
stocks, leading to a stock market boom in the mid-1980s.
-Deregulation in the financial sector meant increased competition between businesses
that took greater risks to win customers, breeding an increasingly unsafe financial
environment
-Came to a head in the late 1980s as people lost both savings and investments during a
crisis in the savings and loans industry (which was only stopped with government
intervention) and the stock market crash of 1987
How did Reagan's economic policies impact upon income inequality?
-Increased it as wealth became concentrated at the top, with the number of billionaires
rising from <10 in 1981 to 52 by 1988, while many Americans saw little benefit
-Whilst tax cuts were intended to stimulate growth, they disproportionately benefited the
wealthy
How did Reagan's economic policies impact upon workers?
-Opposition to the federal minimum wage and obstruction to congressional attempts to
increase it meant it remained at $3.35 throughout his administration
-Opposition to labour unions and the weakening of their bargaining power also meant
wages stagnated for ordinary workers , eg 1981, 13k air traffic controllers on strike,
Reagan said their strike was illegal and fired them all
What impact did Reagan's economic policies have upon the federal deficit?
-Reaganomics resulted in a substantial increase despite his campaigning to reduce it,
from $997b (1981) to $2.85t (1989)
-Cause by significant tax cuts that reduced federal revenues without producing the
anticipated business boom, national debt triples
