macroeconomic policy and agriculture
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Macroeconomic Policy and Agriculture. Chapter 15. Can macroeconomic policy affect agriculture? Sure! The above headline from the front page of the Des Moines Register in 1984 described the financial stress caused by double digit interest rates - PowerPoint PPT PresentationTRANSCRIPT
MacroeconomicPolicy and Agriculture
Chapter 15
Page 357
Can macroeconomic policy affect agriculture? Sure! The aboveheadline from the front page of the Des Moines Register in 1984described the financial stress caused by double digit interest ratesused by the Fed to bring inflation under control.
Can macroeconomic policy affect agriculture? Sure! The aboveheadline from the front page of the Des Moines Register in 1984described the financial stress caused by double digit interest ratesused by the Fed to bring inflation under control.
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
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
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
Macro trends contributing to the farm financial crisis in the early-1980s
Macro trends contributing to the farm financial crisis in the early-1980s
Page 372
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
Page 373
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 …
Page 374
Recall the policy impacts on the general
economy
Page 358
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.
AI
Effects of Expansionary Monetary PolicyEffects of Expansionary Monetary Policy
Interest rates fallInterest rates fall
AI
Effects of Expansionary Monetary PolicyEffects of Expansionary Monetary Policy
Interest rates fallInterest rates fall
Investment growsInvestment grows
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
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
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
Page 358
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.
Effects of Contractionary Monetary PolicyEffects of Contractionary Monetary Policy
Interest rates riseInterest rates rise
Effects of Contractionary Monetary PolicyEffects of Contractionary Monetary Policy
Interest rates riseInterest rates rise
Investment fallsInvestment falls
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
Let’s look at policy impacts on the Ag
sector
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
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
Page 358
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.
Effects of Expansionary Fiscal PolicyEffects of Expansionary Fiscal Policy
Taxes cutDeficit rises
Taxes cutDeficit rises
Effects of Expansionary Fiscal PolicyEffects of Expansionary Fiscal Policy
Taxes cutDeficit rises
Taxes cutDeficit rises
Consumption risesConsumption rises
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
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
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
Page 358
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.
Effects of Contractionary Fiscal PolicyEffects of Contractionary Fiscal Policy
Taxes raisedDeficit falls
Taxes raisedDeficit falls
Effects of Contractionary Fiscal PolicyEffects of Contractionary Fiscal Policy
Taxes raisedDeficit falls
Taxes raisedDeficit falls
Consumption fallsConsumption falls
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
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
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
Impacts on economic well being
Price
Quantity
Consumersurplus
Consumersurplus
Producersurplus
Producersurplus
Measuring Economic Well-Being
1
2
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
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
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
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
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
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
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.
Chapter 16 begins our focus on international trade….