Macroeconomics Paper

Topics: George W. Bush, President of the United States, Inflation Pages: 7 (2354 words) Published: January 31, 2014

U.S. Productivity and Economic Growth during 1980s – 2000s

This class is macroeconomics, which is a part of economics that is the field of economics that studies the behavior of the aggregate economy. Macroeconomics examines economy-wide phenomena such as changes in unemployment, national income, rate of growth, gross domestic product, periods of inflation and price levels. Many changes have occurred in the U.S. productivity and economic growth since the 1980s. There have been periods of recessions, inflation, and unemployment that have occurred in these decades. In this paper we will discuss the U.S productivity and economic growth of the economy for each decade. We will also discuss the GDP rate, the inflation rate, and the unemployment rate for each decade. Another important part of this discussion is how government policies affected the U.S. productivity and economic growth in each of these decades. The recession that occurred in the early 1980s was one of the most severe and the most significant in terms of economic policy of the post-World War II recessions. Economists have considered this recession as “The Reagan Recession.” President Reagan (1981-1989) based his economic program on the theory of supply-side economics, which advocated reducing tax rates so people could keep more of what they earned. In the early 1980s, while he was cutting taxes, Reagan was also slashing social programs. Reagan also undertook a campaign throughout his tenure to reduce or eliminate government regulations affecting the consumer, the workplace, and the environment. The combination of tax cuts and higher military spending overwhelmed more modest reductions in spending on domestic programs. As a result, the federal budget deficit swelled even beyond the levels it had reached during the recession of the early 1980s. From $74,000 million in 1980, the federal budget deficit rose to $221,000 million in 1986. It fell back to $150,000 million in 1987, but then started growing again. Some economists worried that heavy spending and borrowing by the federal government would re-ignite inflation, but the Federal Reserve remained vigilant about controlling price increases, moving quickly to raise interest rates any time it seemed a threat. Under chairman Paul Volcker and his successor, Alan Greenspan, the Federal Reserve retained the central role of economic traffic cop, eclipsing Congress and the president in guiding the nation's economy. The nation endured a deep recession throughout 1982. 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. But while the medicine of a sharp slowdown was hard to swallow, it did break the destructive cycle in which the economy had been caught. By 1983, inflation had eased, the economy had rebounded, and the United States began a sustained period of economic growth. The annual inflation rate remained under 5 percent throughout most of the 1980s and into the 1990s. President Reagan governed over one of the longest recessions (16 months) in our history. In contrast, the recession under Obama lasted five months in 2009. For ten of the 16 months in the Reagan recession, the unemployment rate exceeded 10%, reaching a high of 10.8% for two months in late fall of 1982. The highest unemployment rate under Obama was one month of 10% in late 2009. The economy, meanwhile, turned in an increasingly healthy performance as the 1990s progressed. With the fall of the Soviet Union and Eastern European communism in the late 1980s, trade opportunities expanded greatly. Technological developments brought a wide range of sophisticated new electronic products. Innovations in telecommunications and computer networking spawned a vast computer hardware and software industry and revolutionized the way many industries operate. The economy grew rapidly, and corporate earnings rose rapidly. Combined with...

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