Impact of Reaganomics on the American Economy - 1014 Words

Leading up to the year 1981, America had fallen into a period of â€Å"stagflation†, a portmanteau for ‘stagnant economy’ and ‘high inflation’. Characterized by high taxes, high unemployment, high interest rates, and low national spirit, America needed to look to something other than Keynesian economics to pull itself out of this low. During the election of 1980, Ronald Reagan’s campaign focused on a new stream of economic policy. His objective was to turn the economy into â€Å"a healthy, vigorous, growing economy [which would provide] equal opportunities for all Americans, with no barriers born of bigotry or discrimination.† Reagan’s policy, later known as ‘Reaganomics’, entailed a four-point plan which cut taxes, reduced government spending,†¦show more content†¦Reagan’s deficit spending did not only affect that period of time, it created a tolerance for deficit spending that will continue to affect the economy for many years. This time saw much prosperity for certain areas, such as the stock market. Investors were receiving astonishingly high returns on stocks and were seeing their incomes skyrocket. Overall, during the 1980s real GDP per capita increased by 23% and the value of the stock market almost tripled. However the economic choices Reagan made—transferring the weight of taxes from the rich to the poor—had unfairly redistributed the wealth in the nation. Along with the great prosperity came the equal suffering on the part of the lower class who felt the pains of Reagan’s policies. The wealthiest â…• of Americans’ income soared by a rate of 14%, while the poorest â…• of Americans’ income declined by 24%, widening the gap between the social classes. Even though Reagan was very confident about his economic plan many others were weary of his ideas. George W. Bush Sr. proclaimed Reagan’s economic ideas as ‘Voodoo’ economics believing Reagan’s policy would not live up to its predicted outcome; ironically enough Bush and his son both adopted these policies during their presidencies. Many important congressmen had many fears in Reagan’s policies, they believed that imposing such tax cuts would raise inflation and cause higher interest rates. The public on the other hand, praised theseShow MoreRelatedThe Philip s Curve And Modern Macroeconomic Policy Making?1233 Words   |  5 Pagesshows the relationship between the rate of unemployment and the rate of inflation in any given economy. The discovery of Philip’s curve by the great British economist gave room for the analysis of modern macroeconomic policy tools as well as management of different economies around the globe. The curve can be used t o analyze the relationships between inflation and unemployment rates affecting modern economies. 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