What Reagan Proposed: During the campaign of 1980, Ronald Reagan proposed an economic theory called Supply-Side or Trickle-Down Economics. Tax relief for the rich would enable them to spend and invest more, stimulating the economy to create new jobs. Reagan believed that a tax cut of this nature would ultimately generate even more revenue for the federal government. Congress was skeptical so they limited his plan to only a 25% cut during Reagan's first term. What Actually Happened: This caused a deep recession in 1981 and 1982. The high interest rates caused the value of the dollar to rise on the international exchange market, making American goods more expensive abroad. As a result, exports decreased while imports increased. Eventually, the economy stabilized in 1983, which was Reagan's third year in office, and the remaining years of Reagan's administration experienced national growth for a little less than two decades, taking America out of the economic stagflation caused by President Nixon's administration in the 1970s.