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Agri 2312 chapter 15 macroeconomic policy and agriculture

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AGRICULTURAL ECONOMICS

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Agri 2312 chapter 15 macroeconomic policy and agriculture

  1. 1. Macroeconomic Policy and Agriculture Chapter 15
  2. 2. Page 306 Macro trends contributing to the farm financial crisis in the early-1980s
  3. 3. Page 307 Drop in real net farm income and higher real interest rates led to declines in farm land values
  4. 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. 5. Recall the policy impacts on the general economy
  6. 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. 7. A I Effects of Expansionary Monetary Policy Interest rates fall
  8. 8. A I Effects of Expansionary Monetary Policy Interest rates fall Investment grows
  9. 9. A I Effects of Expansionary Monetary Policy Interest rates fall Investment grows Gap closes with some inflation
  10. 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. 11. Effects of Contractionary Monetary Policy Interest rates rise
  12. 12. Effects of Contractionary Monetary Policy Interest rates rise Investment falls
  13. 13. Effects of Contractionary Monetary Policy Interest rates rise Investment falls Gap closes with less inflation
  14. 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. 15. Effects of Expansionary Fiscal Policy Taxes cut Deficit rises
  16. 16. Effects of Expansionary Fiscal Policy Taxes cut Deficit rises Consumption rises
  17. 17. Effects of Expansionary Fiscal Policy Taxes cut Deficit rises Consumption rises Gap closes with more inflation
  18. 18. Effects of Expansionary Fiscal Policy Spending raised Deficit rises
  19. 19. Effects of Expansionary Fiscal Policy Spending raised Deficit rises Gap closes with more inflation
  20. 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. 21. Effects of Contractionary Fiscal Policy Taxes raised Deficit falls
  22. 22. Effects of Contractionary Fiscal Policy Taxes raised Deficit falls Consumption falls
  23. 23. Effects of Contractionary Fiscal Policy Taxes raised Deficit falls Consumption falls Gap closes with less inflation
  24. 24. Effects of Contractionary Fiscal Policy Spending cut Deficit falls
  25. 25. Effects of Contractionary Fiscal Policy Spending cut Deficit falls Gap closes with less inflation
  26. 26. Let’s look at policy impacts on the Ag sector
  27. 27. Macro AD AS CPI GDP Macro to Micro Linkages for Agriculture Equilibrium in the national product market
  28. 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. 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. 30. Page 294
  31. 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. 32. <ul><li>Expansionary monetary policy impacts: </li></ul><ul><li>Ag commodity prices in general = Higher </li></ul><ul><li>Interest expenses = Lower </li></ul><ul><li>Net farm incomes = Higher </li></ul><ul><li>Farmland prices = Higher </li></ul>
  33. 33. Page 294
  34. 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. 35. <ul><li>Contractionary monetary policy impacts: </li></ul><ul><li>Ag commodity prices in general = Lower </li></ul><ul><li>Interest expenses = Higher </li></ul><ul><li>Net farm incomes = Lower </li></ul><ul><li>Farmland prices = Lower </li></ul>
  36. 36. Page 294
  37. 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. 38. <ul><li>Expansionary fiscal policy impacts: </li></ul><ul><li>Ag commodity prices in general = Higher </li></ul><ul><li>Interest expenses = Higher </li></ul><ul><li>Net farm incomes = Higher </li></ul><ul><li>Farmland prices = Somewhat higher </li></ul>
  39. 39. Page 294
  40. 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. 41. <ul><li>Contractionary fiscal policy impacts: </li></ul><ul><li>Ag commodity prices in general = Lower </li></ul><ul><li>Interest expenses = Lower </li></ul><ul><li>Net farm incomes = Lower </li></ul><ul><li>Farmland prices = Somewhat lower </li></ul>
  42. 42. Impacts on economic well being
  43. 43. Price Quantity Consumer surplus Producer surplus Measuring Economic Well-Being 1 2
  44. 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. 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. 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. 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. 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. 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. 50. Summary <ul><li>Know the direction of affects that expansionary and contractionary monetary and fiscal policy have on key macro variables, including interest rates, inflation and unemployment . </li></ul><ul><li>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. </li></ul><ul><li>Understand the implications for consumer and producer surplus . </li></ul>
  51. 51. Chapter 16 begins our focus on international trade ….

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