Macro-Market-Micro AGEC 430 Macroeconomics of Agriculture Spring 2010.
-
Upload
linda-morrison -
Category
Documents
-
view
222 -
download
0
description
Transcript of Macro-Market-Micro AGEC 430 Macroeconomics of Agriculture Spring 2010.
![Page 1: Macro-Market-Micro AGEC 430 Macroeconomics of Agriculture Spring 2010.](https://reader035.fdocuments.us/reader035/viewer/2022062401/5a4d1b107f8b9ab05998e815/html5/thumbnails/1.jpg)
Macro-Market-MicroMacro-Market-Micro
AGEC 430Macroeconomics of Agriculture
Spring 2010
![Page 2: Macro-Market-Micro AGEC 430 Macroeconomics of Agriculture Spring 2010.](https://reader035.fdocuments.us/reader035/viewer/2022062401/5a4d1b107f8b9ab05998e815/html5/thumbnails/2.jpg)
Let’s Look at a Simplified Let’s Look at a Simplified Closed MacroeconomyClosed Macroeconomy
![Page 3: Macro-Market-Micro AGEC 430 Macroeconomics of Agriculture Spring 2010.](https://reader035.fdocuments.us/reader035/viewer/2022062401/5a4d1b107f8b9ab05998e815/html5/thumbnails/3.jpg)
Ce
Y-T
Ac
Consumption
![Page 4: Macro-Market-Micro AGEC 430 Macroeconomics of Agriculture Spring 2010.](https://reader035.fdocuments.us/reader035/viewer/2022062401/5a4d1b107f8b9ab05998e815/html5/thumbnails/4.jpg)
Ce
Y-T
Ac
ie
Ie Ai
Consumption Investment
![Page 5: Macro-Market-Micro AGEC 430 Macroeconomics of Agriculture Spring 2010.](https://reader035.fdocuments.us/reader035/viewer/2022062401/5a4d1b107f8b9ab05998e815/html5/thumbnails/5.jpg)
Ce
Y-T
Ac
ie
Ie Ai
Ad
Pe
Ypot
As
Consumption Investment Aggregate Product
Ye
Remember that aggregate demand includes both consumption and investment expenditures as well as government spending and net exports.
![Page 6: Macro-Market-Micro AGEC 430 Macroeconomics of Agriculture Spring 2010.](https://reader035.fdocuments.us/reader035/viewer/2022062401/5a4d1b107f8b9ab05998e815/html5/thumbnails/6.jpg)
Ce
Y-T
Ac
ie
Ie Ai
Ad
Pe
Ypot
As
Consumption Investment Aggregate Product
LsLd
wre
Ye
Le Lmax
Labor Market
![Page 7: Macro-Market-Micro AGEC 430 Macroeconomics of Agriculture Spring 2010.](https://reader035.fdocuments.us/reader035/viewer/2022062401/5a4d1b107f8b9ab05998e815/html5/thumbnails/7.jpg)
Ce
Y-T
Ac
ie
Ie Ai
Ad
Pe
Ypot
As
Consumption Investment Aggregate Product
LsLd
wre
Ye
Le Lmax
Labor Market Phillips Curve
UR
%ΔP
![Page 8: Macro-Market-Micro AGEC 430 Macroeconomics of Agriculture Spring 2010.](https://reader035.fdocuments.us/reader035/viewer/2022062401/5a4d1b107f8b9ab05998e815/html5/thumbnails/8.jpg)
Ce
Y-T
Ac
ie
Ie Ai
Ad
Pe
Ypot
As
Consumption Investment Aggregate Product
LsLd
wre
Ye
Le Lmax
Labor Market Phillips Curve
UR
%ΔP
These relationships represent a
simplified “real” macroeconomy
![Page 9: Macro-Market-Micro AGEC 430 Macroeconomics of Agriculture Spring 2010.](https://reader035.fdocuments.us/reader035/viewer/2022062401/5a4d1b107f8b9ab05998e815/html5/thumbnails/9.jpg)
MsMd
ie
Qm
Money Market
Policy LinkagesPolicy Linkages
![Page 10: Macro-Market-Micro AGEC 430 Macroeconomics of Agriculture Spring 2010.](https://reader035.fdocuments.us/reader035/viewer/2022062401/5a4d1b107f8b9ab05998e815/html5/thumbnails/10.jpg)
MsMd
ie
Qm Yt-1
h
T
Money Market Tax Revenue
Policy LinkagesPolicy Linkages
![Page 11: Macro-Market-Micro AGEC 430 Macroeconomics of Agriculture Spring 2010.](https://reader035.fdocuments.us/reader035/viewer/2022062401/5a4d1b107f8b9ab05998e815/html5/thumbnails/11.jpg)
MsMd
ie
Qm Yt-1
h
T
Yt-1
h
T
G
Money Market Tax Revenue Budget Deficit
Policy LinkagesPolicy Linkages
![Page 12: Macro-Market-Micro AGEC 430 Macroeconomics of Agriculture Spring 2010.](https://reader035.fdocuments.us/reader035/viewer/2022062401/5a4d1b107f8b9ab05998e815/html5/thumbnails/12.jpg)
MsMd
ie
Qm Yt-1
h
T
Yt-1
h
T
G
Money Market Tax Revenue Budget Deficit
Policy LinkagesPolicy Linkages
National debt
NDt = NDt-1 + Gt - Tt
![Page 13: Macro-Market-Micro AGEC 430 Macroeconomics of Agriculture Spring 2010.](https://reader035.fdocuments.us/reader035/viewer/2022062401/5a4d1b107f8b9ab05998e815/html5/thumbnails/13.jpg)
Wheat Market
Dw Sw
Pwe
Qwe
Ad
Pe
Ypot
As
Aggregate Product
Ye
Macro to Market LinkageMacro to Market Linkage
![Page 14: Macro-Market-Micro AGEC 430 Macroeconomics of Agriculture Spring 2010.](https://reader035.fdocuments.us/reader035/viewer/2022062401/5a4d1b107f8b9ab05998e815/html5/thumbnails/14.jpg)
Wheat Market
Dw Sw
Pwe
Qwe
Wheat Producer
MC
Pwe MR
qwe
Ad
Pe
Ypot
As
Aggregate Product
Ye
Market to Micro LinkageMarket to Micro Linkage
AC
![Page 15: Macro-Market-Micro AGEC 430 Macroeconomics of Agriculture Spring 2010.](https://reader035.fdocuments.us/reader035/viewer/2022062401/5a4d1b107f8b9ab05998e815/html5/thumbnails/15.jpg)
Wheat Market
Dw Sw
Pwe
Qwe
Wheat Producer
MC
Pwe MR
qwe
Ad
Pe
Ypot
As
Aggregate Product
Ye
Market to Micro LinkageMarket to Micro Linkage
AC
Is the wheat producer making a profit?
![Page 16: Macro-Market-Micro AGEC 430 Macroeconomics of Agriculture Spring 2010.](https://reader035.fdocuments.us/reader035/viewer/2022062401/5a4d1b107f8b9ab05998e815/html5/thumbnails/16.jpg)
Wheat Producer
MC
Pwe MR
qwe
Market to Micro LinkageMarket to Micro Linkage
AC
Average profit is the difference between MR and AC at qwe
Total profit therefore is equal to average profit times qwe
Is the wheat producer making a profit?
![Page 17: Macro-Market-Micro AGEC 430 Macroeconomics of Agriculture Spring 2010.](https://reader035.fdocuments.us/reader035/viewer/2022062401/5a4d1b107f8b9ab05998e815/html5/thumbnails/17.jpg)
Wheat Producer
MC
Pwe MR
qwe
Market to Micro LinkageMarket to Micro Linkage
AC
Average profit is the difference between MR and AC at qwe
Total profit therefore is equal to average profit times qwe
Is the wheat producer making a profit?
![Page 18: Macro-Market-Micro AGEC 430 Macroeconomics of Agriculture Spring 2010.](https://reader035.fdocuments.us/reader035/viewer/2022062401/5a4d1b107f8b9ab05998e815/html5/thumbnails/18.jpg)
Any Questions?Any Questions?
![Page 19: Macro-Market-Micro AGEC 430 Macroeconomics of Agriculture Spring 2010.](https://reader035.fdocuments.us/reader035/viewer/2022062401/5a4d1b107f8b9ab05998e815/html5/thumbnails/19.jpg)
Effects of Expansionary Effects of Expansionary Monetary PolicyMonetary Policy
![Page 20: Macro-Market-Micro AGEC 430 Macroeconomics of Agriculture Spring 2010.](https://reader035.fdocuments.us/reader035/viewer/2022062401/5a4d1b107f8b9ab05998e815/html5/thumbnails/20.jpg)
MsMd
ie
Qm
Money Market
Action:The Federal Reserve buys government bonds.
![Page 21: Macro-Market-Micro AGEC 430 Macroeconomics of Agriculture Spring 2010.](https://reader035.fdocuments.us/reader035/viewer/2022062401/5a4d1b107f8b9ab05998e815/html5/thumbnails/21.jpg)
MsMd
ie
Qm
Money Market
Effect:This action expands the money supply, shifting the money supply curve to the right, and lowers the market interest rate.
![Page 22: Macro-Market-Micro AGEC 430 Macroeconomics of Agriculture Spring 2010.](https://reader035.fdocuments.us/reader035/viewer/2022062401/5a4d1b107f8b9ab05998e815/html5/thumbnails/22.jpg)
ie
Ie Ai
Investment
1
Let’s look at the effect on the “real”economy.
![Page 23: Macro-Market-Micro AGEC 430 Macroeconomics of Agriculture Spring 2010.](https://reader035.fdocuments.us/reader035/viewer/2022062401/5a4d1b107f8b9ab05998e815/html5/thumbnails/23.jpg)
ie
Ie Ai
Ad
Pe
Ypot
As
Investment Aggregate Product
Ye
12
![Page 24: Macro-Market-Micro AGEC 430 Macroeconomics of Agriculture Spring 2010.](https://reader035.fdocuments.us/reader035/viewer/2022062401/5a4d1b107f8b9ab05998e815/html5/thumbnails/24.jpg)
ie
Ie Ai
Ad
Pe
Ypot
As
Investment Aggregate Product
Ye
12 Ce
Y-T
Ac
Consumption
3
We defined inflation as follows:
%ΔP = a1(%Δwr) + a2(Y / YPOT)
Is there demand pull inflationdemand pull inflation in this economy? Why?
![Page 25: Macro-Market-Micro AGEC 430 Macroeconomics of Agriculture Spring 2010.](https://reader035.fdocuments.us/reader035/viewer/2022062401/5a4d1b107f8b9ab05998e815/html5/thumbnails/25.jpg)
ie
Ie Ai
Ad
Pe
Ypot
As
Investment Aggregate Product
LsLd
wre
Ye
Le Lmax
Labor Market
12
4
Ce
Y-T
Ac
Consumption
3
We defined inflation as follows:
%ΔP = a1(%Δwr) + a2(Y / YPOT)
Is there cost push inflationcost push inflation in this economy? Why?
![Page 26: Macro-Market-Micro AGEC 430 Macroeconomics of Agriculture Spring 2010.](https://reader035.fdocuments.us/reader035/viewer/2022062401/5a4d1b107f8b9ab05998e815/html5/thumbnails/26.jpg)
What Does The Phillips Curve What Does The Phillips Curve Therefore Look Like in This Therefore Look Like in This
Economy?Economy?
![Page 27: Macro-Market-Micro AGEC 430 Macroeconomics of Agriculture Spring 2010.](https://reader035.fdocuments.us/reader035/viewer/2022062401/5a4d1b107f8b9ab05998e815/html5/thumbnails/27.jpg)
Phillips Curve
UR
%ΔP
??????
![Page 28: Macro-Market-Micro AGEC 430 Macroeconomics of Agriculture Spring 2010.](https://reader035.fdocuments.us/reader035/viewer/2022062401/5a4d1b107f8b9ab05998e815/html5/thumbnails/28.jpg)
Phillips Curve
UR
%ΔP
Phillips Curve
UR
%ΔP
Thus we can ignore the Phillips Curve for now.
Since no inflation possible
![Page 29: Macro-Market-Micro AGEC 430 Macroeconomics of Agriculture Spring 2010.](https://reader035.fdocuments.us/reader035/viewer/2022062401/5a4d1b107f8b9ab05998e815/html5/thumbnails/29.jpg)
ie
Ie Ai
Ad
Pe
Ypot
As
Investment Aggregate Product
LsLd
wre
Ye
Le Lmax
Labor Market
12
4
Wheat Market
Dw Sw
PWe
QWe
5
Ce
Y-T
Ac
Consumption
3
Increase in wages and disposable personal income increases the demand for wheat as long as the income elasticity > zero.
![Page 30: Macro-Market-Micro AGEC 430 Macroeconomics of Agriculture Spring 2010.](https://reader035.fdocuments.us/reader035/viewer/2022062401/5a4d1b107f8b9ab05998e815/html5/thumbnails/30.jpg)
ie
Ie Ai
Ad
Pe
Ypot
As
Investment Aggregate Product
LsLd
wre
Ye
Le Lmax
Labor Market
12
4
Wheat Market
Dw Sw
PWe
QWe
Wheat Producer
MC
PWe MR
qwe
5 6
Ce
Y-T
Ac
Consumption
3
AC
![Page 31: Macro-Market-Micro AGEC 430 Macroeconomics of Agriculture Spring 2010.](https://reader035.fdocuments.us/reader035/viewer/2022062401/5a4d1b107f8b9ab05998e815/html5/thumbnails/31.jpg)
Farm Income Statement:Farm revenue UpFarm expenses Up slightlyFarm taxable income Up Income taxes No change Net farm income Up
Impact on Farm Financial StatementsImpact on Farm Financial Statements
MC
PWe MR
qwe
6
AC
![Page 32: Macro-Market-Micro AGEC 430 Macroeconomics of Agriculture Spring 2010.](https://reader035.fdocuments.us/reader035/viewer/2022062401/5a4d1b107f8b9ab05998e815/html5/thumbnails/32.jpg)
Farm Income Statement:Farm revenue UpFarm expenses Up slightlyFarm taxable income Up Income taxes No change Net farm income Up
Impact on Farm Financial StatementsImpact on Farm Financial Statements
Remember taxes assumed to be based on Yt-1 and not current income.
![Page 33: Macro-Market-Micro AGEC 430 Macroeconomics of Agriculture Spring 2010.](https://reader035.fdocuments.us/reader035/viewer/2022062401/5a4d1b107f8b9ab05998e815/html5/thumbnails/33.jpg)
Farm Income Statement:Farm revenue UpFarm expenses Up slightlyFarm taxable income Up Income taxes No change Net farm income Up
Farm Balance Sheet: 1/Current assets Up Current liabilities Up (accrued taxes)Land values 2/ Up Fixed liabilities No changeFixed assets No change Net worth UpTotal assets Up Total debt and equity Up
Impact on Farm Financial StatementsImpact on Farm Financial Statements
1/ Assumes a current market value balance sheet.2/ Capitalized land values rise due to higher farm income.
![Page 34: Macro-Market-Micro AGEC 430 Macroeconomics of Agriculture Spring 2010.](https://reader035.fdocuments.us/reader035/viewer/2022062401/5a4d1b107f8b9ab05998e815/html5/thumbnails/34.jpg)
Farm Income Statement:Farm revenue UpFarm expenses Up slightlyFarm taxable income Up Income taxes No change Net farm income Up
Farm Balance Sheet: 1/Current assets Up Current liabilities Up (accrued taxes)Land values 2/ Up Fixed liabilities No changeFixed assets No change Net worth UpTotal assets Up Total debt and equity Up
Impact on Farm Financial StatementsImpact on Farm Financial Statements
1/ Assumes a current market value balance sheet.2/ Capitalized land values fall due to lower farm income.
Conclusion: Expansionary monetary policy good for farmers.
![Page 35: Macro-Market-Micro AGEC 430 Macroeconomics of Agriculture Spring 2010.](https://reader035.fdocuments.us/reader035/viewer/2022062401/5a4d1b107f8b9ab05998e815/html5/thumbnails/35.jpg)
Any Questions?Any Questions?
![Page 36: Macro-Market-Micro AGEC 430 Macroeconomics of Agriculture Spring 2010.](https://reader035.fdocuments.us/reader035/viewer/2022062401/5a4d1b107f8b9ab05998e815/html5/thumbnails/36.jpg)
Effects of Contractionary Effects of Contractionary Fiscal PolicyFiscal Policy
![Page 37: Macro-Market-Micro AGEC 430 Macroeconomics of Agriculture Spring 2010.](https://reader035.fdocuments.us/reader035/viewer/2022062401/5a4d1b107f8b9ab05998e815/html5/thumbnails/37.jpg)
Yt-1
h
T
Tax Revenue
Action:The government raises the income tax rate.
![Page 38: Macro-Market-Micro AGEC 430 Macroeconomics of Agriculture Spring 2010.](https://reader035.fdocuments.us/reader035/viewer/2022062401/5a4d1b107f8b9ab05998e815/html5/thumbnails/38.jpg)
Yt-1
h
T
Yt-1
h
T
G
Tax Revenue Budget Deficit
Effect:Raises tax revenue and lowers the budget deficit in the short run since tax revenue based on last year’s income.
![Page 39: Macro-Market-Micro AGEC 430 Macroeconomics of Agriculture Spring 2010.](https://reader035.fdocuments.us/reader035/viewer/2022062401/5a4d1b107f8b9ab05998e815/html5/thumbnails/39.jpg)
Ce
Y-T
Ac
Consumption
1Let’s look at the effect on the “real”Economy again.
![Page 40: Macro-Market-Micro AGEC 430 Macroeconomics of Agriculture Spring 2010.](https://reader035.fdocuments.us/reader035/viewer/2022062401/5a4d1b107f8b9ab05998e815/html5/thumbnails/40.jpg)
Ce
Y-T
Ac
Consumption
1
ie
Ie Ai
Investment
2
![Page 41: Macro-Market-Micro AGEC 430 Macroeconomics of Agriculture Spring 2010.](https://reader035.fdocuments.us/reader035/viewer/2022062401/5a4d1b107f8b9ab05998e815/html5/thumbnails/41.jpg)
Ce
Y-T
Ac
Consumption
1
ie
Ie Ai
Investment
2
Ad
Pe
Ypot
As
Aggregate Product
Ye
3
![Page 42: Macro-Market-Micro AGEC 430 Macroeconomics of Agriculture Spring 2010.](https://reader035.fdocuments.us/reader035/viewer/2022062401/5a4d1b107f8b9ab05998e815/html5/thumbnails/42.jpg)
LsLd
wre
Le Lmax
Labor Market
4
Ce
Y-T
Ac
Consumption
1
ie
Ie Ai
Investment
2
Ad
Pe
Ypot
As
Aggregate Product
Ye
3
![Page 43: Macro-Market-Micro AGEC 430 Macroeconomics of Agriculture Spring 2010.](https://reader035.fdocuments.us/reader035/viewer/2022062401/5a4d1b107f8b9ab05998e815/html5/thumbnails/43.jpg)
LsLd
wre
Le Lmax
Labor Market
4
Wheat Market
Dw Sw
PWe
QWe
5
Ce
Y-T
Ac
Consumption
1
ie
Ie Ai
Investment
2
Ad
Pe
Ypot
As
Aggregate Product
Ye
3
Decrease in wages and disposable personal income decreases the demand for wheat as long as the income elasticity > zero.
![Page 44: Macro-Market-Micro AGEC 430 Macroeconomics of Agriculture Spring 2010.](https://reader035.fdocuments.us/reader035/viewer/2022062401/5a4d1b107f8b9ab05998e815/html5/thumbnails/44.jpg)
LsLd
wre
Le Lmax
Labor Market
4
Wheat Market
Dw Sw
PWe
QWe
Wheat Producer
MCPWe MR
qwe
5 6
Ce
Y-T
Ac
Consumption
1
ie
Ie Ai
Investment
2
Ad
Pe
Ypot
As
Aggregate Product
Ye
3
AC
![Page 45: Macro-Market-Micro AGEC 430 Macroeconomics of Agriculture Spring 2010.](https://reader035.fdocuments.us/reader035/viewer/2022062401/5a4d1b107f8b9ab05998e815/html5/thumbnails/45.jpg)
Farm Income Statement:Farm revenue DownFarm expenses Down slightlyFarm taxable income Down Income taxes Down Net farm income Down
Impact on Farm Financial StatementsImpact on Farm Financial Statements
MCPWe MR
qwe
6
AC
![Page 46: Macro-Market-Micro AGEC 430 Macroeconomics of Agriculture Spring 2010.](https://reader035.fdocuments.us/reader035/viewer/2022062401/5a4d1b107f8b9ab05998e815/html5/thumbnails/46.jpg)
Farm Income Statement:Farm revenue DownFarm expenses Down slightlyFarm taxable income Down Income taxes Down Net farm income Down
Impact on Farm Financial StatementsImpact on Farm Financial Statements
Last year’s income taxed at a higher rate.
![Page 47: Macro-Market-Micro AGEC 430 Macroeconomics of Agriculture Spring 2010.](https://reader035.fdocuments.us/reader035/viewer/2022062401/5a4d1b107f8b9ab05998e815/html5/thumbnails/47.jpg)
Farm Income Statement:Farm revenue DownFarm expenses Down slightlyFarm taxable income Down Income taxes Down Net farm income Down
Farm Balance Sheet: 1/Current assets Down Current liabilities Down (accrued taxes)Land values 2/ Down Fixed liabilities No changeOther assets No change Net worth Down Total assets Down Total debt and equity Down
Impact on Farm Financial StatementsImpact on Farm Financial Statements
1/ Assumes a current market value balance sheet.2/ Capitalized land values fall due to lower farm income.
![Page 48: Macro-Market-Micro AGEC 430 Macroeconomics of Agriculture Spring 2010.](https://reader035.fdocuments.us/reader035/viewer/2022062401/5a4d1b107f8b9ab05998e815/html5/thumbnails/48.jpg)
Farm Income Statement:Farm revenue DownFarm expenses Down slightlyFarm taxable income Down Income taxes Down Net farm income Down
Farm Balance Sheet: 1/Current assets Down Current liabilities Down (accrued taxes)Land values 2/ Down Fixed liabilities No changeOther assets No change Net worth Down Total assets Down Total debt and equity Down
Impact on Farm Financial StatementsImpact on Farm Financial Statements
1/ Assumes a current market value balance sheet.2/ Capitalized land values fall due to lower farm income.
Conclusion: Contractionary fiscal policy not good for farmers.
![Page 49: Macro-Market-Micro AGEC 430 Macroeconomics of Agriculture Spring 2010.](https://reader035.fdocuments.us/reader035/viewer/2022062401/5a4d1b107f8b9ab05998e815/html5/thumbnails/49.jpg)
Any Questions?Any Questions?
![Page 50: Macro-Market-Micro AGEC 430 Macroeconomics of Agriculture Spring 2010.](https://reader035.fdocuments.us/reader035/viewer/2022062401/5a4d1b107f8b9ab05998e815/html5/thumbnails/50.jpg)
Know These RelationshipsKnow These Relationships