Question

In: Economics

During the 1970s, America faced an energy crisis and stagflation (stagnant economic growth with high inflation)....

During the 1970s, America faced an energy crisis and stagflation (stagnant economic growth with high inflation). Ronald Reagan came to power touting supply-side economic theory (cut taxes on the wealthy so that they would invest more which would, in turn, create jobs). The immediate results of his policies was the worst recession since the Great Depression. By the end of 1983 the economy was recovery and by the end of 1984 the stock market was soaring.

How were average Americans impacted by the policies of Ronald Reagan?

Solutions

Expert Solution

Economy was hit by the recession during the 70s owing to the rise in the prices of oil. OPEC increased the prices of oil massively. It led to the situations of the stagflation. stagflation refers to the economic conditions where economy growth falls and general price level increases.

The President Reagan's recommended the supply side economics. He reduced the level of taxes in economy . furthermore, government went for reducing the expenditure of government. Hence the immediate impact was in form of reduced public expenditure. The aggregate demand declined here. It led to rise in unemployment rates. Hence here the economic conditions of people became more worst.

But after sometime, the supply side incentive began to work. Hence the supply increased and real GDP increased as well. Therefore over the long run, economic conditions of average American got improved. The economic standards of people increased significantly and incredibly.


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