Reawakening The Giant

16 Pages 3958 Words

o effect until 1982. Additionally, he stated in public that there would not be an economic turnaround until 1983, when it actually happened.8 Logically, the blame should go on the previous administration. What Reagan inherited was economic stagnation, double digit inflation, double digit unemployment, and a ‘bear’ stock market.9 Not since the 1930’s was there a worse economic recession.10 The one-time movie actor had a plan for recovery.
Reagan’s domestic policy has been deemed Reaganomics, a form of supply-side economics. In supply-side theory, tax-rate reductions encourage savings and investments and therefore increase production and national economic growth. Another factor that affects growth is consumer spending, which is directly proportional to average personal income of all people, rich and poor. Supply-side economics, in theory, raises this average income by the following ways. First, through investment and expansion, more jobs are offered to the populace. After a portion of these jobs are taken, there are less people unemployed. Then, companies must raise salaries and benefits to attract workers, since the demand for workers is high and the supply of workers is low. Finally, workers spend their new incomes on various goods and services. This provides companies with more money, which they use to reinvest and expand their businesses even more. Another positive consequence to corporate wealth i!
s that there are less layoffs and other downsizing efforts. A company usually downsizes when its cost exceeds its
revenue, but a little extra capital can produce a profit margin and save jobs.11
In order to pull the economy out of the recession, Reagan proposed four major policy changes. First, he encouraged a restrictive monetary policy by encouraging the Federal Reserve to keep Federal Interest Rates high. This was designed to fight inflation. It worked by causing banks to raise loan interest rate...