Question

The period of 1960-1982 represents Time in our economic history with high unemployment and high interest rates, high inflation at the same time. Describe reasons/causes and policies for the increase in the high inflation in this Monetary and fiscal policy. What role did the money supply/economic goals play in these conditions utilizing the concepts in this course what steps could be pushed to protect us from this environment in the future

Answer 1

The early 1980s recession in the United States began in July 1981 and ended in November 1982. One cause was the Federal Reserve's contractionary monetary policy, which sought to rein in the high inflation.In the wake of the 1973 oil crisis and the 1979 energy crisis, stagflation began to afflict the economy.. Stagflation is the situation of high inflation clubbed with no economic growth, ie output or income stagnates. This leads to unemloyment.

A mild recession from January to July 1980 kept unemployment high, but despite economic recovery, it remained at historically high levels (about 7.5%) until the end of 1981. Inflation, which had averaged 3.2% annually since World War II had more than doubled after the 1973 oil shock, to a 7.7% annual rate. Inflation reached 9.1% in 1975, the highest rate since 1947. Inflation declined to 5.8% the following year but then edged higher. By 1979, inflation reached a startling 11.3% and in 1980, it soared to 13.5%.

Recovery

The midterm elections were the low point of Reagan's presidency.

According to Keynesian economists, a combination of deficit spending and the lowering of interest rates would slowly lead to economic recovery. Many economists also insist that the significantly-lower tax rates significantly contributed to the recovery. From a high of 10.8% in December 1982, unemployment gradually improved until it fell to 7.2% on Election Day in 1984. Inflation fell from 10.3% in 1981 to 3.2% in 1983. Corporate income rose by 29% in the July–September quarter of 1983, compared with the same period in 1982. Some of the most dramatic improvements came in industries that were the hardest hit by the recession, such as paper and forest products, rubber, airlines, and the auto industry.

By November 1984, voter anger at the recession had evaporated, and Reagan's re-election was certain. Reagan was subsequently re-elected by a landslide electoral and popular vote margin in the 1984 presidential election. Immediately after the election, Dave Stockman, Reagan's OMB manager admitted that the coming deficits were much higher than the projections that had been released during the campaign.