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Many experts feel that the US 1980 recession was welcomed one as it broke the destructive cycle in which the economy had been caught. This recession helped to ease inflation and by 1983, the US economy had bounced back and the nation started its economic growth all over again.
The cause of the US 1980 recession has been mainly attributed to the important political consequences that occurred in the 1970s. The American people did not like the federal policies introduced by Jimmy Carter and showed their displeasure by electing Ronald Reagan as president.
Reagan’s economic program was based on the supply side economic theory, which advocated reducing taxes so that people could end up keeping more of what they earned. Reagan believed that by lowering taxes, people would work harder and longer and this would result in more savings and investments, which in turn would increase production and overall economic growth of the nation.
The tax cuts, however, ended up benefitting the wealthy Americans and not the lower income people. In addition, while Reagan was cutting taxes, he also started reducing funding to social programs. He felt that the United States had neglected its military after the Vietnam War so be increased the defense spending.
Because of tax cuts and increased military spending, the federal budget deficit increased beyond control and this led to inflation which later on translated to a brief recession. However, the Federal Reserve moved in quickly raise interest rates and control inflation. This brought the US 1980 recession under control and it did not have just a widespread impact.
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