ABSTRACT
The years from 1985 to a point early in the 21st century are known in the United States as the Great Moderation. Government spending increased in 1985 and 1986, largely because of increases in national defense spending under the Reagan administration, but further increases were modest until the next mild recession in 2001. Monetary policy focused on keeping inflation low by restraining the growth of the money supply and pushing the federal funds rate from the low 3.02 percent in 1993 up to over 5.3 percent from 1995 to 1999. The federal budget turned from surplus in 2001 to large deficits starting in 2002. The United Kingdom (UK) experience in the second half of the 1980s differs from that of the United States. In the 1960s, the UK banking system consisted mainly of clearing banks that provided basic banking services and made conservative investments, as well as building societies that primarily concentrated on home loans.
