Unit 8 Study Guide
Topic 19.2: A New Direction for the American Economy
● Supply-Side Economics and Reaganomics: Reagan's economic policies were based
on the theory of supply-side economics, which proposed that tax cuts for the wealthy
would encourage investment and economic growth. The Economic Recovery Act of 1981
reduced taxes by 23% over three years, primarily benefiting the wealthy under the belief
that their investments would create jobs. To balance these tax cuts, Reagan also
reduced federal spending, especially on social programs.
● Economic Recession and Recovery: The economy fell into a deep recession from
1980 to 1982, with unemployment reaching over 10%. Despite this, the economy began
to recover in 1983, with reduced inflation and a growing Gross National Product (GNP).
However, the economic gains were unevenly distributed, with the wealth gap widening.
● Immigration and Social Issues: During the 1980s, over 7.3 million legal immigrants
entered the U.S., many from Latin America and Asia. In 1984, the case of Edgewood
I.S.D. v. Kirby in Texas led to a redistribution of school funding for greater equity. The
1986 Immigration Reform Act increased border security, penalized employers for hiring
undocumented workers, and granted amnesty to immigrants who entered before 1982.
● Problems with Deficits: Reagan increased defense spending while cutting taxes,
resulting in federal budget deficits that grew from $79 billion in 1981 to $221 billion in
1986. Congress attempted to address this with the Gramm-Rudman-Hollings Act, which
aimed to balance the budget. The Savings and Loan crisis further deepened the deficit,
and Social Security faced financial strain, prompting the Social Security Reform Act of
1983.
● Trade Imbalance with Japan: By the 1980s, American exports declined while Japanese
products dominated markets like automobiles and electronics. Reagan placed tariffs on
Japanese electronics, leading to trade negotiations.
● Reagan and Organized Labor: When the air-traffic controllers went on strike in 1981,
Reagan fired them, signaling a major shift in federal attitudes toward organized labor.
● Private Sector Initiatives: Reagan promoted private sector solutions for social issues,
emphasizing volunteerism and corporate responsibility, highlighted by organizations like
the Center for Corporate Public Involvement.
Topic 19.4: Bush Forges a New Role in the World
● Political Changes and War on Drugs in Latin America: Bush responded to political
shifts in Latin America, including democratization in Nicaragua and El Salvador. He also
launched military operations in Panama to arrest Manuel Noriega for drug trafficking.
● China Resists Calls for Democracy: In 1989, Chinese students protested for
democratic reforms in Tiananmen Square. The Chinese government responded with
military force, resulting in a massacre. Bush condemned the action but maintained
economic and diplomatic ties.
● Pressures in South Africa: Global and domestic pressures led to the end of apartheid.
Nelson Mandela was released in 1990, and Bush endorsed democratic reforms, which
culminated in Mandela's election as president in 1994.
● U.S. Efforts for Peace and Human Rights: The U.S. intervened in Somalia during
Operation Restore Hope to provide humanitarian aid and restore order. Bush also
navigated conflicts in the Balkans, advocating for UN peacekeeping efforts.
● The Persian Gulf War: After Iraq invaded Kuwait in 1990, Bush led an international
coalition under Operation Desert Storm to repel Iraqi forces. The war ended swiftly,
reinforcing U.S. military dominance and global leadership.
● Free Trade and Treaties: During Bush's presidency, the U.S. promoted global economic
policies through the North American Free Trade Agreement (NAFTA), which aimed to
reduce trade barriers between the U.S., Canada, and Mexico. Although signed in 1992,
it would be fully realized under Clinton. Bush also continued to support the General
Agreement on Tariffs and Trade (GATT), which would evolve into the World Trade
Organization (WTO), strengthening global trade relationships.
● Political Changes and War on Drugs in Latin America: Bush responded to political
shifts in Latin America, including democratization in Nicaragua and El Salvador. He also
launched military operations in Panama to arrest Manuel Noriega for drug trafficking.
● China Resists Calls for Democracy: In 1989, Chinese students protested for
democratic reforms in Tiananmen Square. The Chinese government responded with
military force, resulting in a massacre. Bush condemned the action but maintained
economic and diplomatic ties.
● Pressures in South Africa: Global and domestic pressures led to the end of apartheid.
Nelson Mandela was released in 1990, and Bush endorsed democratic reforms, which
culminated in Mandela's election as president in 1994.
● U.S. Efforts for Peace and Human Rights: The U.S. intervened in Somalia during
Operation Restore Hope to provide humanitarian aid and restore order. Bush also
navigated conflicts in the Balkans, advocating for UN peacekeeping efforts.
● The Persian Gulf War: After Iraq invaded Kuwait in 1990, Bush led an international
coalition under Operation Desert Storm to repel Iraqi forces. The war ended swiftly,
reinforcing U.S. military dominance and global leadership.
Topic 19.5: Clinton Enacts New Domestic Policies
● Family Medical Leave Act: Clinton signed this act to guarantee most full-time
employees 12 weeks of unpaid leave for family or medical reasons.
● Healthcare Reform Efforts: Clinton attempted sweeping healthcare reform led by
Hillary Clinton, but it faced heavy opposition and failed to pass.
● Crime and Violence Initiatives: The Brady Bill imposed stricter regulations on handgun
purchases. Clinton also pushed for anti-crime legislation, addressing issues like school
shootings and domestic terrorism, highlighted by the Oklahoma City bombing and
Columbine.
● Conservative Resurgence: In 1994, Newt Gingrich led Republicans to take control of
Congress with the 'Contract with America,' emphasizing smaller government, tax cuts,
and welfare reform.
Mini Lesson: The Iran-Contra Affair
● Background: During Reagan's second term, a political scandal known as the
Iran-Contra Affair unfolded. It involved secret U.S. arms sales to Iran, which was under
an arms embargo, in exchange for the release of American hostages held in Lebanon.
● Funding Nicaraguan Contras: The proceeds from these arms sales were secretly
diverted to fund the Contras, a rebel group fighting the Sandinista government in
Nicaragua. This was done despite Congress explicitly prohibiting aid to the Contras
through the Boland Amendment.
● Discovery and Investigation: The secret operation was exposed in 1986, leading to
widespread investigations. Key figures, including Lieutenant Colonel Oliver North,
testified before Congress. North admitted to shredding documents to cover up the
operation.
● Outcome: Although Reagan claimed he did not know about the diversion of funds, the
scandal cast a shadow over his administration. Several officials were convicted, but most
sentences were overturned on appeal or pardoned by President George H.W. Bush in
1992.
● Significance: The Iran-Contra Affair raised significant questions about presidential
authority, executive secrecy, and the limits of congressional power.
