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In Search of the American Dream: The USA, c1917–96

Reagan’s economic policies

  • 3 things to know
  • Paper 1

Overview

Recall questions on supply-side tax cuts, the Volcker interest rate shock, deregulation and the savings and loan crisis, deficits, PATCO, and the Rust Belt.

What you need to know

Answer each one before you reveal it.

Your recallNot started
Key term

What is supply-side economics?

Numbers

What was the PATCO strike, and why was it significant?

Key term

What were the effects of deregulation?

Questions from this subtopic

Each one with the model answer underneath.

  1. 1

    What was Reaganomics?

    Model answer

    The policy mix of large income tax cuts, deregulation, restraint of domestic spending and tight money to break inflation, combined with a big defence build-up.

  2. 2

    What is supply-side economics?

    Model answer

    The theory that cutting marginal tax rates increases incentives to work and invest so much that output, and even revenue, will rise.

  3. 3

    What did the Economic Recovery Tax Act of 1981 do?

    Model answer

    It cut individual income tax rates by roughly 25 per cent over three years and reduced the top rate substantially, the largest tax cut in American history to that point.

  4. 4

    How was inflation brought down in the early 1980s?

    Model answer

    By the Federal Reserve under Volcker raising interest rates sharply, which cut inflation from over 13 per cent to about 4 per cent but caused the severe recession of 1981-82.

  5. 5

    What happened to the federal deficit under Reagan?

    Model answer

    It rose sharply, because tax cuts and defence increases were not matched by spending reductions; the national debt roughly tripled during his presidency.

  6. 6

    What was the PATCO strike, and why was it significant?

    Model answer

    Reagan dismissed 11,000 striking air traffic controllers in 1981, a signal to employers that confronting unions was acceptable, and union membership declined steeply thereafter.

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AThe government admitted 96 dead and 333 wounded.
BOther estimates run to several hundred dead.
COpponents claimed thousands.

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