Prior to the Reagan administration, the United States economy experienced a decade of rising unemployment and inflation, (known as stagflation). Political pressure favored stimulus resulting in an expansion of the money supply. President Richard Nixon’s wage and price controls were abandoned. The federal oil reserves were created to ease any future short term shocks. President Jimmy Carter started phasing out price controls on petroleum, while he created the Department of Energy. Much of the credit for the resolution of the stagflation is given to two causes: a three year contraction of the money supply by the Federal Reserve Board under Paul Volcker, initiated in the last year of Carter’s presidency, and long term easing of supply and pricing in oil during the 1980s oil glut. In his stated intention to increase defense spending while lowering taxes, Reagan’s approach was a departure from his immediate predecessors. Reagan enacted lower marginal tax rates in conjunction with simplified income tax codes and continued deregulation. During Reagan’s presidency the annual deficits averaged 4.2% of GDP after inheriting an annual deficit of 2.7% of GDP in 1980 under president Carter. The rate of growth in federal spending fell from 4% under Jimmy Carter to 2.5% under Ronald Reagan. GDP per working-age adult, which had increased at only a 0.8% annual rate during the Carter administration, increased at a 1.8% rate during the Reagan administration. The increase in productivity <b>…</b>
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