agri 2312 chapter 15 macroeconomic policy and agriculture
DESCRIPTION
AGRICULTURAL ECONOMICSTRANSCRIPT
Introduction to Agricultural Economics, 5th edPenson, Capps, Rosson, and Woodward
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights
Reserved.
MacroeconomicPolicy and Agriculture
Chapter 15
Introduction to Agricultural Economics, 5th edPenson, Capps, Rosson, and Woodward
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights
Reserved.
Page 306
Macro trends contributing to the farm financial crisis in the early-1980s
Macro trends contributing to the farm financial crisis in the early-1980s
Introduction to Agricultural Economics, 5th edPenson, Capps, Rosson, and Woodward
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights
Reserved.
Page 307
Drop in real net farmincome and higherreal interest rates ledto declines in farmland values
Drop in real net farmincome and higherreal interest rates ledto declines in farmland values
Introduction to Agricultural Economics, 5th edPenson, Capps, Rosson, and Woodward
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights
Reserved.
Page 308
As real net farm incomesdeclined and real interestrates rose, investmentexpenditures fell sharply.Outlays for operating inputsalso declined.
As real net farm incomesdeclined and real interestrates rose, investmentexpenditures fell sharply.Outlays for operating inputsalso declined.
General economy was in much better shape …
General economy was in much better shape …
Introduction to Agricultural Economics, 5th edPenson, Capps, Rosson, and Woodward
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights
Reserved.
Recall the policy impacts on the general
economy
Introduction to Agricultural Economics, 5th edPenson, Capps, Rosson, and Woodward
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights
Reserved.
Page 294
This table summarizes the impacts that expansionaryand contractionary monetary and fiscal policy haveupon key variables that can have a distinct effect on thefinancial health of farm operator families.
This table summarizes the impacts that expansionaryand contractionary monetary and fiscal policy haveupon key variables that can have a distinct effect on thefinancial health of farm operator families.
Introduction to Agricultural Economics, 5th edPenson, Capps, Rosson, and Woodward
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights
Reserved.
AI
Effects of Expansionary Monetary PolicyEffects of Expansionary Monetary Policy
Interest rates fallInterest rates fall
Introduction to Agricultural Economics, 5th edPenson, Capps, Rosson, and Woodward
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights
Reserved.
AI
Effects of Expansionary Monetary PolicyEffects of Expansionary Monetary Policy
Interest rates fallInterest rates fall
Investment growsInvestment grows
Introduction to Agricultural Economics, 5th edPenson, Capps, Rosson, and Woodward
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights
Reserved.
AI
Effects of Expansionary Monetary PolicyEffects of Expansionary Monetary Policy
Interest rates fallInterest rates fall
Investment growsInvestment grows
Gap closes with some inflation
Gap closes with some inflation
Introduction to Agricultural Economics, 5th edPenson, Capps, Rosson, and Woodward
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights
Reserved.
Page 294
This table summarizes the impacts that expansionaryand contractionary monetary and fiscal policy haveupon key variables that can have a distinct effect on thefinancial health of farm operator families.
This table summarizes the impacts that expansionaryand contractionary monetary and fiscal policy haveupon key variables that can have a distinct effect on thefinancial health of farm operator families.
Introduction to Agricultural Economics, 5th edPenson, Capps, Rosson, and Woodward
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights
Reserved.
Effects of Contractionary Monetary PolicyEffects of Contractionary Monetary Policy
Interest rates riseInterest rates rise
Introduction to Agricultural Economics, 5th edPenson, Capps, Rosson, and Woodward
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights
Reserved.
Effects of Contractionary Monetary PolicyEffects of Contractionary Monetary Policy
Interest rates riseInterest rates rise
Investment fallsInvestment falls
Introduction to Agricultural Economics, 5th edPenson, Capps, Rosson, and Woodward
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights
Reserved.
Effects of Contractionary Monetary PolicyEffects of Contractionary Monetary Policy
Interest rates riseInterest rates rise
Investment fallsInvestment falls
Gap closes with less inflation
Gap closes with less inflation
Introduction to Agricultural Economics, 5th edPenson, Capps, Rosson, and Woodward
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights
Reserved.
Page 292
This table summarizes the impacts that expansionaryand contractionary monetary and fiscal policy haveupon key variables that can have a distinct effect on thefinancial health of farm operator families.
This table summarizes the impacts that expansionaryand contractionary monetary and fiscal policy haveupon key variables that can have a distinct effect on thefinancial health of farm operator families.
Introduction to Agricultural Economics, 5th edPenson, Capps, Rosson, and Woodward
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights
Reserved.
Effects of Expansionary Fiscal PolicyEffects of Expansionary Fiscal Policy
Taxes cutDeficit rises
Taxes cutDeficit rises
Introduction to Agricultural Economics, 5th edPenson, Capps, Rosson, and Woodward
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights
Reserved.
Effects of Expansionary Fiscal PolicyEffects of Expansionary Fiscal Policy
Taxes cutDeficit rises
Taxes cutDeficit rises
Consumption risesConsumption rises
Introduction to Agricultural Economics, 5th edPenson, Capps, Rosson, and Woodward
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights
Reserved.
Effects of Expansionary Fiscal PolicyEffects of Expansionary Fiscal Policy
Taxes cutDeficit rises
Taxes cutDeficit rises
Consumption risesConsumption rises
Gap closes with more inflation
Gap closes with more inflation
Introduction to Agricultural Economics, 5th edPenson, Capps, Rosson, and Woodward
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights
Reserved.
Effects of Expansionary Fiscal PolicyEffects of Expansionary Fiscal Policy
Spending raisedDeficit rises
Spending raisedDeficit rises
Introduction to Agricultural Economics, 5th edPenson, Capps, Rosson, and Woodward
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights
Reserved.
Effects of Expansionary Fiscal PolicyEffects of Expansionary Fiscal Policy
Spending raisedDeficit rises
Spending raisedDeficit rises
Gap closes with more inflation
Gap closes with more inflation
Introduction to Agricultural Economics, 5th edPenson, Capps, Rosson, and Woodward
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights
Reserved.
Page 292
This table summarizes the impacts that expansionaryand contractionary monetary and fiscal policy haveupon key variables that can have a distinct effect on thefinancial health of farm operator families.
This table summarizes the impacts that expansionaryand contractionary monetary and fiscal policy haveupon key variables that can have a distinct effect on thefinancial health of farm operator families.
Introduction to Agricultural Economics, 5th edPenson, Capps, Rosson, and Woodward
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights
Reserved.
Effects of Contractionary Fiscal PolicyEffects of Contractionary Fiscal Policy
Taxes raisedDeficit falls
Taxes raisedDeficit falls
Introduction to Agricultural Economics, 5th edPenson, Capps, Rosson, and Woodward
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights
Reserved.
Effects of Contractionary Fiscal PolicyEffects of Contractionary Fiscal Policy
Taxes raisedDeficit falls
Taxes raisedDeficit falls
Consumption fallsConsumption falls
Introduction to Agricultural Economics, 5th edPenson, Capps, Rosson, and Woodward
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights
Reserved.
Effects of Contractionary Fiscal PolicyEffects of Contractionary Fiscal Policy
Taxes raisedDeficit falls
Taxes raisedDeficit falls
Consumption fallsConsumption falls
Gap closes with less inflation
Gap closes with less inflation
Introduction to Agricultural Economics, 5th edPenson, Capps, Rosson, and Woodward
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights
Reserved.
Effects of Contractionary Fiscal PolicyEffects of Contractionary Fiscal Policy
Spending cutDeficit falls
Spending cutDeficit falls
Introduction to Agricultural Economics, 5th edPenson, Capps, Rosson, and Woodward
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights
Reserved.
Effects of Contractionary Fiscal PolicyEffects of Contractionary Fiscal Policy
Spending cutDeficit falls
Spending cutDeficit falls
Gap closes with less inflation
Gap closes with less inflation
Introduction to Agricultural Economics, 5th edPenson, Capps, Rosson, and Woodward
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights
Reserved.
Let’s look at policy impacts on the Ag
sector
Introduction to Agricultural Economics, 5th edPenson, Capps, Rosson, and Woodward
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights
Reserved.
Macro
AD ASCPI
GDP
Macro to Micro Linkages for AgricultureMacro to Micro Linkages for Agriculture
Equilibrium in the national
product market
Equilibrium in the national
product market
Introduction to Agricultural Economics, 5th edPenson, Capps, Rosson, and Woodward
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights
Reserved.
Macro Market
AD ASCPI
GDP
PCORN
QCORN
DS
Macro to Micro Linkages for AgricultureMacro to Micro Linkages for Agriculture
Equilibrium in the national
product market
Equilibrium in the national
product market
Equilibrium in the national corn
market
Equilibrium in the national corn
market
Introduction to Agricultural Economics, 5th edPenson, Capps, Rosson, and Woodward
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights
Reserved.
Macro Market Micro
AD ASCPI
GDP
PCORN
QCORN
$
Output
DS
MC
Macro to Micro Linkages for AgricultureMacro to Micro Linkages for Agriculture
Equilibrium in the national
product market
Equilibrium in the national
product market
Equilibrium in the national corn
market
Equilibrium in the national corn
market
Equilibrium for Gary Corngrower
in Texas
Equilibrium for Gary Corngrower
in Texas
qcorn
Introduction to Agricultural Economics, 5th edPenson, Capps, Rosson, and Woodward
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights
Reserved.
Page 294
Introduction to Agricultural Economics, 5th edPenson, Capps, Rosson, and Woodward
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights
Reserved.
Macro Market Micro
AD ASCPI
GDP
PCORN
QCORN
$
Output
DS
Impact of Expansionary Macro PolicyImpact of Expansionary Macro Policy
Equilibrium in the national
product market
Equilibrium in the national
product market
Equilibrium in the national corn
market
Equilibrium in the national corn
market
Equilibrium for Gary Corngrower
in Texas
Equilibrium for Gary Corngrower
in Texas
qcorn
MC
Introduction to Agricultural Economics, 5th edPenson, Capps, Rosson, and Woodward
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights
Reserved.
Expansionary monetaryExpansionary monetary policy impacts:•Ag commodity prices in general = Higher•Interest expenses = Lower •Net farm incomes = Higher•Farmland prices = Higher
Expansionary monetaryExpansionary monetary policy impacts:•Ag commodity prices in general = Higher•Interest expenses = Lower •Net farm incomes = Higher•Farmland prices = Higher
Introduction to Agricultural Economics, 5th edPenson, Capps, Rosson, and Woodward
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights
Reserved.
Page 294
Introduction to Agricultural Economics, 5th edPenson, Capps, Rosson, and Woodward
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights
Reserved.
Macro Market Micro
AD ASCPI
GDP
PCORN
QCORN
$
Output
DS
Impact of Contractionary Macro PolicyImpact of Contractionary Macro Policy
Equilibrium in the national
product market
Equilibrium in the national
product market
Equilibrium in the national corn
market
Equilibrium in the national corn
market
Equilibrium for Gary Corngrower
in Texas
Equilibrium for Gary Corngrower
in Texas
qcorn
MC
Introduction to Agricultural Economics, 5th edPenson, Capps, Rosson, and Woodward
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights
Reserved.
Contractionary monetaryContractionary monetary policy impacts:•Ag commodity prices in general = Lower•Interest expenses = Higher•Net farm incomes = Lower•Farmland prices = Lower
Contractionary monetaryContractionary monetary policy impacts:•Ag commodity prices in general = Lower•Interest expenses = Higher•Net farm incomes = Lower•Farmland prices = Lower
Introduction to Agricultural Economics, 5th edPenson, Capps, Rosson, and Woodward
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights
Reserved.
Page 294
Introduction to Agricultural Economics, 5th edPenson, Capps, Rosson, and Woodward
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights
Reserved.
Macro Market Micro
AD ASCPI
GDP
PCORN
QCORN
$
Output
DS
Impact of Expansionary Macro PolicyImpact of Expansionary Macro Policy
Equilibrium in the national
product market
Equilibrium in the national
product market
Equilibrium in the national corn
market
Equilibrium in the national corn
market
Equilibrium for Gary Corngrower
in Texas
Equilibrium for Gary Corngrower
in Texas
qcorn
MC
Introduction to Agricultural Economics, 5th edPenson, Capps, Rosson, and Woodward
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights
Reserved.
ExpansionaryExpansionary fiscal policy impacts:•Ag commodity prices in general = Higher•Interest expenses = Higher•Net farm incomes = Higher•Farmland prices = Somewhat higher
ExpansionaryExpansionary fiscal policy impacts:•Ag commodity prices in general = Higher•Interest expenses = Higher•Net farm incomes = Higher•Farmland prices = Somewhat higher
Introduction to Agricultural Economics, 5th edPenson, Capps, Rosson, and Woodward
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights
Reserved.
Page 294
Introduction to Agricultural Economics, 5th edPenson, Capps, Rosson, and Woodward
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights
Reserved.
Macro Market Micro
AD ASCPI
GDP
PCORN
QCORN
$
Output
DS
MC
Impact of Contractionary Macro PolicyImpact of Contractionary Macro Policy
Equilibrium in the national
product market
Equilibrium in the national
product market
Equilibrium in the national corn
market
Equilibrium in the national corn
market
Equilibrium for Gary Corngrower
in Texas
Equilibrium for Gary Corngrower
in Texas
qcorn
Introduction to Agricultural Economics, 5th edPenson, Capps, Rosson, and Woodward
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights
Reserved.
ContractionaryContractionary fiscal policy impacts:•Ag commodity prices in general = Lower•Interest expenses = Lower•Net farm incomes = Lower•Farmland prices = Somewhat lower
ContractionaryContractionary fiscal policy impacts:•Ag commodity prices in general = Lower•Interest expenses = Lower•Net farm incomes = Lower•Farmland prices = Somewhat lower
Introduction to Agricultural Economics, 5th edPenson, Capps, Rosson, and Woodward
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights
Reserved.
Impacts on economic well being
Introduction to Agricultural Economics, 5th edPenson, Capps, Rosson, and Woodward
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights
Reserved.
Price
Quantity
Consumersurplus
Consumersurplus
Producersurplus
Producersurplus
Measuring Economic Well-Being
1
2
Introduction to Agricultural Economics, 5th edPenson, Capps, Rosson, and Woodward
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights
Reserved.
Macro Market Micro
AD ASCPI
GDP
PCORN
QCORN
$
Output
DS
MC
What Can We Say About Gary’s Business?What Can We Say About Gary’s Business?
Equilibrium in the national
product market
Equilibrium in the national
product market
Equilibrium in the national corn
market
Equilibrium in the national corn
market
Equilibrium for Gary Corngrower
in Texas
Equilibrium for Gary Corngrower
in Texas
qcorn
ATC
Introduction to Agricultural Economics, 5th edPenson, Capps, Rosson, and Woodward
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights
Reserved.
Macro Market Micro
AD ASCPI
GDP
PCORN
QCORN
$
Output
DS
MC
Equilibrium in the national
product market
Equilibrium in the national
product market
Equilibrium in the national corn
market
Equilibrium in the national corn
market
Equilibrium for Gary Corngrower
in Texas
Equilibrium for Gary Corngrower
in Texas
qcorn
What Can We Say About Gary’s Business?What Can We Say About Gary’s Business?
ATC
Introduction to Agricultural Economics, 5th edPenson, Capps, Rosson, and Woodward
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights
Reserved.
Price
Quantity
Measuring Economic Well-Being
1
2
3
5
4
Consumersurplus?Before = 1+2After = 1+5Gain = 5 – 2
Consumersurplus?Before = 1+2After = 1+5Gain = 5 – 2
Producersurplus?Before = 3After = 2+3+4Gain = 2+4
Producersurplus?Before = 3After = 2+3+4Gain = 2+4
Introduction to Agricultural Economics, 5th edPenson, Capps, Rosson, and Woodward
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights
Reserved.
Macro Market Micro
AD ASCPI
GDP
PCORN
QCORN
$
Output
DS
MC
What Can We Say About Gary’s Business?What Can We Say About Gary’s Business?
Equilibrium in the national
product market
Equilibrium in the national
product market
Equilibrium in the national corn
market
Equilibrium in the national corn
market
Equilibrium for Gary Corngrower
in Texas
Equilibrium for Gary Corngrower
in Texas
qcorn
ATC
Introduction to Agricultural Economics, 5th edPenson, Capps, Rosson, and Woodward
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights
Reserved.
Macro Market Micro
AD ASCPI
GDP
PCORN
QCORN
$
Output
DS
Impact of Contractionary Macro PolicyImpact of Contractionary Macro Policy
Equilibrium in the national
product market
Equilibrium in the national
product market
Equilibrium in the national corn
market
Equilibrium in the national corn
market
Equilibrium for Gary Corngrower
in Texas
Equilibrium for Gary Corngrower
in Texas
qcorn
MC
Introduction to Agricultural Economics, 5th edPenson, Capps, Rosson, and Woodward
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights
Reserved.
Price
Quantity
Measuring Economic Well-Being
1
2
3
5
4
Consumersurplus?Before = 1+5After = 1+2Loss = 2 – 5
Consumersurplus?Before = 1+5After = 1+2Loss = 2 – 5
Producersurplus?Before = 2+3+4After = 3Loss = 2+4
Producersurplus?Before = 2+3+4After = 3Loss = 2+4
Introduction to Agricultural Economics, 5th edPenson, Capps, Rosson, and Woodward
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights
Reserved.
SummaryKnow 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.
Introduction to Agricultural Economics, 5th edPenson, Capps, Rosson, and Woodward
© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights
Reserved.
Chapter 16 begins our focus on international trade….