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Economics 101: A True-False Test

How Did the American Economy Fare in the 1980s?

JULY 01, 1995 by RALPH R. REILAND

Professor Reiland, associate professor of economics at Robert Morris College, owns Amel’s Restaurant in Pittsburgh.

Here’s a quiz. Which of the following statements about the American economy during the 1980s are true?

1. From 1982 to 1989, 19 million net new jobs were created in the United States (more than the number of jobs created in Europe and Japan combined), two-thirds of them high- or middle-paying, resulting in the lowest unemployment rate in 16 years.

2. The economic growth unleashed by tax cuts increased federal tax revenues in the 1980s by $1.1 trillion.

3. These additional federal tax revenues contributed to the reduction of the federal deficit from 6.3 percent of GDP in 1983 to 2.9 percent in 1989. (A Congress loaded with pork peddlers blocked greater spending cuts.)

4. Presidents Kennedy and Reagan both enacted supply-side tax cuts on top income earners and job creators and produced the two longest economic expansions in American history.

5. The Reagan tax cuts “trickled down” to produce a 76 percent jump in new business investment in real (adjusted for inflation) dollars in the 1980s and tripled the rate of productivity growth.

6. Real per capita after-tax income rose by 19 percent in the 1980s, nearly double the rate of the 1970s.

7. Real family income increased each year from 1983 through 1990 in every income group (from the poorest fifth of households to the richest fifth), while median family income fell by 1.9 percent in 1993.

8. The real income in the bottom fifth of the income distribution increased by 12 percent in the 1980s, reversing a 17 percent slide between 1979 and 1983.

9. Eighty-six percent of the tax filers in the poorest fifth of families in 1980 moved out of that bottom quintile by 1988 (16 percent moved all the way to the top fifth of income earners).

10. Looking at income distribution as an individual matter, not as a group comparison, real median income increased by 5 percent between 1982 and 1988 for those who started in the top fifth of income earners, and increased 77 percent for those who started in the bottom fifth (primarily by moving out of that bottom quintile).

11. Real family income declined each year from 1979 until 1982, and has declined each year since 1991. The years sandwiched between these two periods of shrinking income produced a real increase of $4,877 in median family annual real income.

12. Since 1988, the typical American household has lost $2,344 in real annual income, and the degree of income inequality is now at a post-World War II high.

13. After growing nationwide by 7 million people during the late 1970s, the poverty population declined by 4 million during the 1980s; reversing the downward trend, poverty in the ’90s is rising again with over a million Americans falling into poverty in 1993.

14. The top income-tax rate was reduced from 70 percent to 28 percent in the ’80s, but the top 5 percent of all earners paid more taxes, increasing their share of all federal income taxes paid from 36 percent in 1980 to 43 percent in 1990.

15. In the 1980s, the percentage of African-American families earning more than $50,000 in real dollars doubled from 7 to 14 percent, the unemployment rate for black teenagers fell by 21 percent and black employment in professional and managerial jobs expanded by one-third. After declining 10 percent between 1978 and 1982, the real median income of black families increased by 17 percent between 1982 and 1989.

16. From 1982 to 1987, the number of black-owned businesses increased by 38 percent, triple the overall business growth rate during that period, The number of new Hispanic-owned businesses soared by 81 percent.

17. The median weekly earnings of female workers grew 8 percent faster than male earnings in the 1980s, and women entrepreneurs ended the decade employing more people than all of the Fortune 500 companies combined. The number of women-owned firms expanded by 57 percent in the ’80s and the sales volume of these firms tripled.

18. Following the double-digit annual inflation rates of 11.3 percent, 13.5 percent, and 10. 3 percent during the Carter years, the annual inflation rate averaged 3.9 percent in the two Reagan terms.

Scoring: Each of the above statements is true. All information is based on Labor Department and Census Bureau studies. Readers missing more than 12 questions are eligible for Rhodes Scholarship assistance.

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July 1995

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