Throughout the 1980s, the U.S. government increased government spending and decreased taxes

Question

By 1987, the economy was returning to full-employment GDP, raising concerns about the burden of the debt and crowding out.

True or False: The budget deficit was not of great concern in the early 1980s because the economy was at full employment.

True

False

Answer 1

FALSE

The official explanation was that, through the tax cuts and the increased federal spending, the economy was able to expand to a point where the debt was a lower and more handle-able percentage of the gross national product, and thus not a problem.

The other poster (Louis G) who talks about cold war spending also has a point, we were told that by investing in defeating Communism rather than just containing it, we would eventually get to the point where we could dramatically decrease defense spending and thus pay off the debt (remember the Peace Dividend that lasted about three months before everyone had their own idea of where to spend the money rather than on paying back the debt?).

Answer 2

The first part of the question is true, During the 1980's the government did increase spending while decreasing taxes. I wouldn't say that the budget defecit was not a concern. During the Reagan years the national debt doubled.  

Answer 3

True regarding the unemployment figures. And the tax cuts had the effect of tripling tax revenues to the Treasury because of that increased commercial activity. However, the Congress found ways to spend it all, plus. And they did it by handing the President an Omnibus Spending Act just before recessing.  

Answer 4

True?

Answer 5

I think you have made a couple of false assumptions. The budget deficit in the 1980's was a result of the cold war arms race. It was not a great concern because it was seen as necessary to combat the threat of the USSR.  There is some evidance that running short term deficits can have a stimulative effect, but in the long term they are harmful. That debt must be financed somehow.