10 The Reagan Years (Feb 2)

10 The Reagan Years (Feb 2) - REAGAN YEARS Background:...

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REAGAN YEARS Background: “Stagflation” of 1970s (energy shocks, budget deficits, inflation + unemployment) Unionized sector: initially, wages keep pace with inflation, employment cut Employment begins to shift to nonunionized sectors; labor force expands 1980: Reagan elected; new philosophy of gov’t, eco Major issue of 1980 : Stagflation (caused by energy shocks). Inflation = too much money chasing too few goods Strategy to combat it : (1) Produce more goods; (2) Reduce money in circulation Usually mutually exclusive; Reagan admin saw both
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1. Produce more goods: Accelerate out of inflation by “freeing” private sector a. Stimulate eco via fiscal policy i. Taxes: Reduced, but oriented to “supply” side (to investors, companies), not demand side (favors lower income groups); ii. Expenditurres: See below. Cut domestic spending, increase military budget (by a lot!!) iii. Result: Ballooning deficit, by 1986 income taxes increased vis tax code reform iv. Effect for individuals: Somewhat lower
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10 The Reagan Years (Feb 2) - REAGAN YEARS Background:...

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