Question

When Reagan took office, he brought with him a new economic philosophy. With the guidance of his economic advisors, he tried to stimulate the economy. To do this, his administration cut taxes and invested government money in job-creation programs. It seemed to work. In the eight years that Reagan was president, the unemployment rate fell from 7.5 percent to 5.4 percent. During that same period, inflation dropped from 12.5 percent to 4.4 percent.

Which of these economic concerns was related to the achievements described in the passage?

“Baby boomers” did not want the jobs that had been created by government.
Reagan “froze” wages and prices to accomplish this economic recovery.
Inflation and unemployment rates declined, but stagflation did not.
The nation’s deficit rose greatly as inflation and unemployment fell.

Answer 1

The nation’s deficit rose greatly as inflation and unemployment fell.

Reason: Reagan’s tax cuts plus increased government spending to create jobs helped reduce inflation and unemployment, but they also substantially increased the federal budget deficit — a major economic concern of that period.