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Agri 2312 chapter 15 macroeconomic policy and agriculture

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AGRICULTURAL ECONOMICS

AGRICULTURAL ECONOMICS

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  • 1. Macroeconomic Policy and Agriculture Chapter 15
  • 2. Page 306 Macro trends contributing to the farm financial crisis in the early-1980s
  • 3. Page 307 Drop in real net farm income and higher real interest rates led to declines in farm land values
  • 4. Page 308 As real net farm incomes declined and real interest rates rose, investment expenditures fell sharply. Outlays for operating inputs also declined. General economy was in much better shape …
  • 5. Recall the policy impacts on the general economy
  • 6. Page 294 This table summarizes the impacts that expansionary and contractionary monetary and fiscal policy have upon key variables that can have a distinct effect on the financial health of farm operator families.
  • 7. A I Effects of Expansionary Monetary Policy Interest rates fall
  • 8. A I Effects of Expansionary Monetary Policy Interest rates fall Investment grows
  • 9. A I Effects of Expansionary Monetary Policy Interest rates fall Investment grows Gap closes with some inflation
  • 10. Page 294 This table summarizes the impacts that expansionary and contractionary monetary and fiscal policy have upon key variables that can have a distinct effect on the financial health of farm operator families.
  • 11. Effects of Contractionary Monetary Policy Interest rates rise
  • 12. Effects of Contractionary Monetary Policy Interest rates rise Investment falls
  • 13. Effects of Contractionary Monetary Policy Interest rates rise Investment falls Gap closes with less inflation
  • 14. Page 292 This table summarizes the impacts that expansionary and contractionary monetary and fiscal policy have upon key variables that can have a distinct effect on the financial health of farm operator families.
  • 15. Effects of Expansionary Fiscal Policy Taxes cut Deficit rises
  • 16. Effects of Expansionary Fiscal Policy Taxes cut Deficit rises Consumption rises
  • 17. Effects of Expansionary Fiscal Policy Taxes cut Deficit rises Consumption rises Gap closes with more inflation
  • 18. Effects of Expansionary Fiscal Policy Spending raised Deficit rises
  • 19. Effects of Expansionary Fiscal Policy Spending raised Deficit rises Gap closes with more inflation
  • 20. Page 292 This table summarizes the impacts that expansionary and contractionary monetary and fiscal policy have upon key variables that can have a distinct effect on the financial health of farm operator families.
  • 21. Effects of Contractionary Fiscal Policy Taxes raised Deficit falls
  • 22. Effects of Contractionary Fiscal Policy Taxes raised Deficit falls Consumption falls
  • 23. Effects of Contractionary Fiscal Policy Taxes raised Deficit falls Consumption falls Gap closes with less inflation
  • 24. Effects of Contractionary Fiscal Policy Spending cut Deficit falls
  • 25. Effects of Contractionary Fiscal Policy Spending cut Deficit falls Gap closes with less inflation
  • 26. Let’s look at policy impacts on the Ag sector
  • 27. Macro AD AS CPI GDP Macro to Micro Linkages for Agriculture Equilibrium in the national product market
  • 28. Macro Market AD AS CPI GDP P CORN Q CORN D S Macro to Micro Linkages for Agriculture Equilibrium in the national product market Equilibrium in the national corn market
  • 29. Macro Market Micro AD AS CPI GDP P CORN Q CORN $ Output D S MC Macro to Micro Linkages for Agriculture Equilibrium in the national product market Equilibrium in the national corn market Equilibrium for Gary Corngrower in Texas q corn
  • 30. Page 294
  • 31. Macro Market Micro AD AS CPI GDP P CORN Q CORN $ Output D S Impact of Expansionary Macro Policy Equilibrium in the national product market Equilibrium in the national corn market Equilibrium for Gary Corngrower in Texas q corn MC
  • 32.
    • Expansionary monetary policy impacts:
    • Ag commodity prices in general = Higher
    • Interest expenses = Lower
    • Net farm incomes = Higher
    • Farmland prices = Higher
  • 33. Page 294
  • 34. Macro Market Micro AD AS CPI GDP P CORN Q CORN $ Output D S Impact of Contractionary Macro Policy Equilibrium in the national product market Equilibrium in the national corn market Equilibrium for Gary Corngrower in Texas q corn MC
  • 35.
    • Contractionary monetary policy impacts:
    • Ag commodity prices in general = Lower
    • Interest expenses = Higher
    • Net farm incomes = Lower
    • Farmland prices = Lower
  • 36. Page 294
  • 37. Macro Market Micro AD AS CPI GDP P CORN Q CORN $ Output D S Impact of Expansionary Macro Policy Equilibrium in the national product market Equilibrium in the national corn market Equilibrium for Gary Corngrower in Texas q corn MC
  • 38.
    • Expansionary fiscal policy impacts:
    • Ag commodity prices in general = Higher
    • Interest expenses = Higher
    • Net farm incomes = Higher
    • Farmland prices = Somewhat higher
  • 39. Page 294
  • 40. Macro Market Micro AD AS CPI GDP P CORN Q CORN $ Output D S MC Impact of Contractionary Macro Policy Equilibrium in the national product market Equilibrium in the national corn market Equilibrium for Gary Corngrower in Texas q corn
  • 41.
    • Contractionary fiscal policy impacts:
    • Ag commodity prices in general = Lower
    • Interest expenses = Lower
    • Net farm incomes = Lower
    • Farmland prices = Somewhat lower
  • 42. Impacts on economic well being
  • 43. Price Quantity Consumer surplus Producer surplus Measuring Economic Well-Being 1 2
  • 44. Macro Market Micro AD AS CPI GDP P CORN Q CORN $ Output D S MC What Can We Say About Gary’s Business? Equilibrium in the national product market Equilibrium in the national corn market Equilibrium for Gary Corngrower in Texas q corn ATC
  • 45. Macro Market Micro AD AS CPI GDP P CORN Q CORN $ Output D S MC Equilibrium in the national product market Equilibrium in the national corn market Equilibrium for Gary Corngrower in Texas q corn What Can We Say About Gary’s Business? ATC
  • 46. Price Quantity Measuring Economic Well-Being 1 2 3 5 4 Consumer surplus? Before = 1+2 After = 1+5 Gain = 5 – 2 Producer surplus? Before = 3 After = 2+3+4 Gain = 2+4
  • 47. Macro Market Micro AD AS CPI GDP P CORN Q CORN $ Output D S MC What Can We Say About Gary’s Business? Equilibrium in the national product market Equilibrium in the national corn market Equilibrium for Gary Corngrower in Texas q corn ATC
  • 48. Macro Market Micro AD AS CPI GDP P CORN Q CORN $ Output D S Impact of Contractionary Macro Policy Equilibrium in the national product market Equilibrium in the national corn market Equilibrium for Gary Corngrower in Texas q corn MC
  • 49. Price Quantity Measuring Economic Well-Being 1 2 3 5 4 Consumer surplus? Before = 1+5 After = 1+2 Loss = 2 – 5 Producer surplus? Before = 2+3+4 After = 3 Loss = 2+4
  • 50. Summary
    • Know the direction of affects that expansionary and contractionary monetary and fiscal policy have on key macro variables, including interest rates, inflation and unemployment .
    • Know the affects that expansionary and contractionary monetary and fiscal policy have on key Ag sector variables, including farm product prices, farmland values and farm input sales.
    • Understand the implications for consumer and producer surplus .
  • 51. Chapter 16 begins our focus on international trade ….