Slide Show #8 AGEC 430 Macroeconomics of Agriculture Spring 2010

Handout #13

Again, think of this as a “recipe” for producing output to meet aggregate demand. Again, think of this as a “recipe” for producing output to meet aggregate demand.

Handout #14

More on this soon

The graph shows the surplus achieved in the 1990s as productivity rose and the sharp declines after 9/11 when defense spending rose.

The gross federal government debt has risen sharply in response to the budget deficits in recent years. Let’s take a look at the national debt clock.

Handout #15

Another financial market… the nation’s bond market.

Assume tax rate (tx) is increased. Assume tax rate (tx) is increased.

Price Quantity D S Step 1: Decrease in consumer disposable income shifts the demand curve for say wheat to the left. This decreases the market clearing prices and quantity for wheat. Step 1: Decrease in consumer disposable income shifts the demand curve for say wheat to the left. This decreases the market clearing prices and quantity for wheat. P1P2P1P2 Q2Q1Q2Q1 Let’s Step Through This Graphically

Price Quantity D S P1P2P1P2 Q2Q1Q2Q1 Step 2: Farm revenue = price times quantity. Revenue decreases as both price and quantity decrease (i.e., P 2 Q 2 < P 1 Q 1 ) Step 2: Farm revenue = price times quantity. Revenue decreases as both price and quantity decrease (i.e., P 2 Q 2 < P 1 Q 1 ) Step 1: Decrease in consumer disposable income shifts the demand curve for say wheat to the left. This decreases the market clearing prices and quantity for wheat. Step 1: Decrease in consumer disposable income shifts the demand curve for say wheat to the left. This decreases the market clearing prices and quantity for wheat. Let’s Step Through This Graphically

Price Quantity D S P1P2P1P2 Q2Q1Q2Q1 Step 2: Farm revenue = price times quantity. Revenue decreases as both price and quantity decrease (i.e., P 2 Q 2 < P 1 Q 1 ) Step 2: Farm revenue = price times quantity. Revenue decreases as both price and quantity decrease (i.e., P 2 Q 2 < P 1 Q 1 ) Step 3: Higher tax rates reduce after tax net farm income. Step 3: Higher tax rates reduce after tax net farm income. Step 1: Decrease in consumer disposable income shifts the demand curve for say wheat to the left. This decreases the market clearing prices and quantity for wheat. Step 1: Decrease in consumer disposable income shifts the demand curve for say wheat to the left. This decreases the market clearing prices and quantity for wheat. Let’s Step Through This Graphically

Price Quantity D S P1P2P1P2 Q2Q1Q2Q1 Step 2: Farm revenue = price times quantity. Revenue decreases as both price and quantity decrease (i.e., P 2 Q 2 < P 1 Q 1 ) Step 2: Farm revenue = price times quantity. Revenue decreases as both price and quantity decrease (i.e., P 2 Q 2 < P 1 Q 1 ) Step 3: Higher tax rates reduce after tax net farm income. Step 3: Higher tax rates reduce after tax net farm income. Step 4: Net farm income = farm revenue minus farm expenses. Net farm income after taxes falls as a result of steps 2 and 3. Step 4: Net farm income = farm revenue minus farm expenses. Net farm income after taxes falls as a result of steps 2 and 3. Step 1: Decrease in consumer disposable income shifts the demand curve for say wheat to the left. This decreases the market clearing prices and quantity for wheat. Step 1: Decrease in consumer disposable income shifts the demand curve for say wheat to the left. This decreases the market clearing prices and quantity for wheat. Let’s Step Through This Graphically

Step 4: Net farm income = farm revenue minus farm expenses. Net farm income after taxes falls as a result of steps 2 and 3. Step 4: Net farm income = farm revenue minus farm expenses. Net farm income after taxes falls as a result of steps 2 and 3. Let’s Step Through This Graphically

Step 4: Net farm income = farm revenue minus farm expenses. Net farm income after taxes falls as a result of steps 2 and 3. Step 4: Net farm income = farm revenue minus farm expenses. Net farm income after taxes falls as a result of steps 2 and 3. Step 5: The capitalized value of farm land can be approximated by dividing net farm income by a capitalization rate such as the rate of interest, or: LV = Net farm income / interest rate. If net farm income after taxes falls for a given interest rate, then farm land values should decrease. Step 5: The capitalized value of farm land can be approximated by dividing net farm income by a capitalization rate such as the rate of interest, or: LV = Net farm income / interest rate. If net farm income after taxes falls for a given interest rate, then farm land values should decrease. Let’s Step Through This Graphically

Step 4: Net farm income = farm revenue minus farm expenses. Net farm income after taxes falls as a result of steps 2 and 3. Step 4: Net farm income = farm revenue minus farm expenses. Net farm income after taxes falls as a result of steps 2 and 3. Step 5: The capitalized value of farm land can be approximated by dividing net farm income by a capitalization rate such as the rate of interest, or: LV = Net farm income / interest rate. If net farm income after taxes falls for a given interest rate, then farm land values should decrease. Step 5: The capitalized value of farm land can be approximated by dividing net farm income by a capitalization rate such as the rate of interest, or: LV = Net farm income / interest rate. If net farm income after taxes falls for a given interest rate, then farm land values should decrease. Step 6: Net worth = total assets minus total debt. If farm land values are falling and net farm income after taxes is falling, then total assets will decrease, thereby decreasing net worth. Step 6: Net worth = total assets minus total debt. If farm land values are falling and net farm income after taxes is falling, then total assets will decrease, thereby decreasing net worth. Let’s Step Through This Graphically

Off-farm income of farm operator families typically is greater the net farm income at the national level.