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Question: In the early 1980s, the US rate of inflation fell from 13% to 4%, government regulation decreased and deregulation increased, and the Reagan Administration passed significant tax incentives to boost saving and investment. Yet according to BLS statistics, productivity in the nonfarm business sector rose only 1.1% during the 1980s, compared to an average annual increase of 1.9% in the 1970s.

(A) Explain how long lags in response to R&D expenditures might have caused the slowdown in productivity growth in the 1980s.

(B) Most of the Reagan tax incentives for saving and investment were canceled in 1986. How did that affect productivity growth?

(C) The dollar doubled in value from 1980 to 1985 and then returned to its previous level in 1988. What effect do you think that had on productivity growth?

(D) What other factors may have caused productivity growth to decline in the 1980s?

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M93114908

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