1980s Economy

Supply Side Economics The theory which holds that a greater supply of goods and services is key to economic growth, Reagan sought large tax cuts to promote greater consumer spending, saving and investment. Supply-side economists argued that a tax cut would lead to increased business investment, increased earnings and -- through taxes on these earnings -- increased government revenues. The theory which holds that a greater supply of goods and services is key to economic growth, Reagan sought large tax cuts to promote greater consumer spending, saving and investment. Supply-side economists argued that a tax cut would lead to increased business investment, increased earnings and -- through taxes on these earnings -- increased government revenues.

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Early Recession The nation endured a deep recession throughout Business bankruptcies rose 50 percent over the previous year. Farmers were especially hard hit, as agricultural exports declined, crop prices fell and interest rates rose.

Recession Throughout the Midwest, major firms like General Electric and International Harvester released workers. The oil crisis contributed to the decline. As gains in U.S. productivity slowed, economic rivals such as Germany and Japan won a greater share of world trade. American consumption of goods produced by other countries rose sharply.

Effects of the Recession But the recession, combined with falling oil prices and the Federal Reserve's tight control of money and credit, helped to curb runaway inflation. By 1983, the economy had rebounded and the United States entered into one of the longest periods of sustained economic growth since World War II. The annual inflation rate remained under 5 percent from 1983 through 1987.

U.S. Deficits Federal deficits soared throughout the 1980s. – From $74 billion in 1980, the federal budget deficit rose to $221 billion in 1986 before falling back to $150 billion in The U.S. trade deficit hit a record $152 billion that same year. A stock market crash in the autumn of 1987 led many to question the stability of the economy.

U.S. Deficits The increased military budget -- combined with the tax cuts and the growth in government health spending -- resulted in the federal government spending far more than it received in revenues each year.

Implications Going Forward The U.S. economy did slow and dipped into recession in 1991, and then began a slow recovery in As a result of the slowing economy and other factors, the federal budget deficit began heading upward again.

Exit Slip Write about one thing that they learned today, Relate it to something that they learned from first quarter Why is it important? Write about one thing that they learned today, Relate it to something that they learned from first quarter Why is it important?