<P> By reducing or eliminating decades - long social programs, while at the same time lowering taxes and marginal tax rates, Reagan's approach to handling the economy marked a significant departure from that of many of his predecessor's Keynesian policies . Milton Friedman, the monetarist economist who was an intellectual architect of free - market policies, was a primary influence on Reagan . </P> <P> When Reagan entered office, the country faced the highest rate of inflation since 1947 (average annual rate of 13.5% in 1980), and interest rates as high as 13% (the Fed funds rate in Dec. 1980). These were considered the nation's principal economic problems and were all considered components of "stagflation ." Reagan sought to stimulate the economy with large, across - the - board tax cuts The expansionary fiscal policies soon became known as "Reaganomics", and were considered by some to be the most serious attempt to change the course of U.S. economic policy of any administration since the New Deal . His radical tax reforms, in combination with a curb on domestic social spending, harsh restraints applied by the Federal Reserve Board under Paul Volcker on the nation's money supply, and heavy government borrowing required to finance the budget and trade deficits, as well as military expenditures, produced significant economic expansion and reduced inflation . Inflation was reduced by more than ten percentage points, reaching a low of 1.9% annual average inflation in 1986 . </P> <P> One of the Reagan administration's strategies to reduce government spending was privatization of government functions, paying contractors to do work that government agencies had formerly done . </P> <P> President Reagan's tenure marked a time of expanded economic prosperity for many Americans . The misery index sank to 9.72 from a high of 19.33, the greatest improvement record for a President since Harry S. Truman left office . In terms of American households, the percentage of total households making less than $10,000 a year (in real 2007 dollars) shrunk from 8.8% in 1980 to 8.3% in 1988 while the percentage of households making over $75,000 went from 20.2% to 25.7% during that period . However, the number of Americans below the poverty level did not decline at all . The number of children, ages 18 years and younger, below the poverty level increased from 11.543 million in 1980, 18.3% of children, to 12.455, 19.5%, in 1988 . Also, the situation of low income groups was affected by the reduction of social spending, and inequality increased . The share of total income received by the 5% highest - income households grew from 16.5% in 1980 to 18.3% in 1988 and the share of the highest fifth of income increased from 44.1% to 46.3% in same years . In contrast, the share of total income of the lowest fifth of households fell from 4.2% in 1980 to 3.8% in 1988 and the second poorest fifth from 10.2% to 9.6% . </P>

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