growing annual federal budget deficits and private investment projects in the united states real interest rates in the economy rose markedly also (see figure 18.5,A,which repeats the 1970 experience for comparison purposes). The stronger dollar in foreign currency markets (see figure 18.5,B),also increased our purchasing power in international markets, and resulted in higher, relatively cheap imports that helped reduce domestic inflation. However, it also depressed the export demand for U.S.-produced products that had to be paid for with more expensive U.S. dollars. The growing in imports and decline in exports led to a growing international trade deficit, which reached unprecedented levels in the late 1980s.
As inflation rates came down to low, single-digit levels in the mid-1980s (see figure 15.4), the federal Reserve began to adopt more expansionary monetary policies. The combination of both expansionary monetary and fiscal policies led to a prolonged period of economic growth in the U.S. economy that continued until the fourth quarter of 1990 (see Figure 14.4). Did the phenomenalperiod of real economic growth in the federal in come and price support policies in place during the 1980s.