Supply - became Reaganomics. Two problems compromised the...

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Supply-side economics Another economic problem of the late 1970s was exploding budget deficits. Because the  budget is part of fiscal policy, not monetary policy, monetarism did not speak to this  problem directly. Another group, called supply-side economists, offered the surprising  suggestion that government could raise more money by  cutting  taxes. Their argument  was fairly straightforward: High taxes were limiting national productivity, so lowering  taxes would stimulate economic growth and eventually produce more revenue. The  Reagan administration accepted this approach, so much so that supply-side economics 
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Unformatted text preview: became Reaganomics. Two problems compromised the success of supply-side policies. The Reagan administration increased defense spending dramatically (something the theory did not take into account). Increased expenses combined with the tax cuts to produce a massive budget deficit. Moreover, much of the economic windfall went to buy products manufactured in foreign countries, and so provided little direct stimulus to the U.S. economy. Budget deficits grew even more, and unemployment remained (at least temporarily) high....
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This note was uploaded on 11/20/2011 for the course POSI 1310 taught by Professor Arnold during the Spring '08 term at Texas State.

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