I
Topic Overview
Agricultural Economics 430
Macroeconomics of Agriculture
Spring 2010
Instructor:
John B. Penson, Jr.
Regents Professor and Stiles Professor of Agriculture
Department of Agricultural Economics
Office:
Room 352C, Blocker Building
845-4060 jpenson@tamu.edu
Linda Crenwelge, Secretary
Room 352D, Blocker Building
5223. lsc@tamu.edu
Teaching Assistant:
Name: To be announced
Room: To be announced
Hours: To be announced
Email: To be announced
Website for Course Information:
AGEC 430 course information can be found over the course of the semester by clicking on the above web link. I will make announcements when new information is posted on this site or on Howdy. You can also access the AGEC 430 website through the departmental website and going to my faculty page.
Course Location:
Blocker Building, Room 149
TR 9:35-10:50 am
Course Requirements:
There will be four examinations in this course: (1) three hour exams, and (2) an optional final exam given during finals week. The final exam will be comprehensive in scope.
In addition to these three exams, you will be required as a member of a team to make one formal presentation before the class and submit a brief technical report to me at the end of the semester. This presentation will be based on your analysis of a mythical economy and the implications for mythical business in that nation’s food and fiber system. More specifics about presentation requirements are discussed later in this syllabus.
Grading:
There will be 600 points possible in this course (800 if you elect to take the optional final). This total is determined as follows:
Team presentation 150 points
Hour exams (3) 300 points
Homework assignments (4) 100 points
Pop quizzes (5) 50 points
Total 600 points
Optional final exam 200 points
Total 800 points
I do not grade on a curve. You can always determine your grade in this class by dividing the total points achieved on a particular date by the total possible points available at that time.
I will assign grades according to the following distribution:
A 90 – 100 percent
B 80 – 89 percent
C 70 – 79 percent
D 60 – 69 percent
F Less than 60 percent
Seat assignments:
Come to the second class period in time to select your seat for rest of semester. A seating chart will be distributed on that day. I do not take roll. The seating chart passed out next class period is designed to help me associate names with faces. I do plan on calling upon you periodically during lectures.
Absences:
If you have to miss class, letting me know in advance will help you avoid a grade of zero on a pop quiz. Unexcused exams, quizzes, and homework assignments will receive a grade of zero. University rules regarding excused and unexcused absences will be followed.
All homework assignments must represent original work and must be submitted electronically. More will be said about where to send the assignments later in the course. You are urged to save a copy of submitted assignments on your computer.
Use of programmable calculators:
The use of programmable calculators on examinations is NOT authorized unless approved by me. According to departmental policy dated October 20, 2005, use of an unauthorized programmable calculator during an exam is considered cheating and will result in a grade of zero on the exam, a grade of “F” in the course, and your name reported to the Aggie Honor System Office.
Student Needs:
All students who have the need for adjustments to enable their learning will be accommodated. The Americans with Disabilities Act (ADA) is a federal anti-discrimination statute that provides comprehensive civil rights protection for persons with disabilities. Among other things, this legislation requires that all students with disabilities be guaranteed a learning environment that provides for reasonable accommodation of their disabilities. If you believe you have a disability requiring accommodation, please contact the Department of Student Life, Services for Students with Disabilities in Cain Hall so your professor can best accommodate your needs. The phone number is 845-1637.
Academic Integrity Statement:
“An Aggie does not lie, cheat or steal, or tolerate those who do.” Upon accepting admission to Texas A&M University, a student immediately assumes a commitment to uphold the Honor Code, to accept responsibility for learning and to follow the philosophy and rules of the Honor System. Students will be required to state their commitment on examinations, research papers, and other academic work. Ignorance of the rules does not exclude any member of the Texas A&M University community from the requirements or the processes of the Honor System. For additional information, please visit tamu.edu/aggiehonor/ .
Course Outline:
The general objective of this course is to illustrate the process of macroeconomic analysis and what this means for specific segments of the nation’s farmers and ranchers, input supply firms, food processors and fiber manufacturers, and other related sectors in the U.S. The order of topics to be covered is as follows:
Structure and Scope of Course (HO #1)
• Food and fiber industry
• Importance to domestic economy
• Key linkages in product, input, and financial markets
• Purpose of this course
• Selected homework problems and team presentation
• Forecasting contest
Important Terminology
• Opportunity cost
• Marginal analysis
• Positive and normative analysis
• Microeconomics and macroeconomics
• Elasticity
• Closed and open economy
• Productivity
• Inflation
• Comparative advantage
• GDP
Market Equilibrium Conditions (HO #2 and #3)
• Factors affecting demand
• Concept of market demand, elasticity, and consumer surplus
• Factors affecting supply
• Concept of market supply, elasticity, and producer surplus
• Market equilibrium under perfect and imperfect competition
• Excess demand and excess supply
• Multi-market interaction
• Homework problem no. 1: Market equilibrium and its characteristics
Measuring Macroeconomic Activity
• Circular flow diagram
• Measurement of gross domestic product
• Nominal GDP and the GDP deflator
• Concept of real interest rates
• Importance of productivity and resource availability
• The production function
Consumption Expenditures (HO #4)
• Microeconomic foundations
• Graphical analysis
• Alternative theories
• Marginal propensity to consume and save
Investment Expenditures (HO #5 and #6)
• Microeconomic foundations
• Graphical analysis
• Alternative theories
• Marginal efficiency of investment
Capacity and Capacity Utilization (HO #7)
• Microeconomic foundations
• Graphical analysis
• Implications for inflation
1. Business Fluctuations (HO #8)
• Business cycles
• Economic indicators
• Supply curve conditions
• Phillips curve
• Aggregate equilibrium
• Expansionary and recessionary GDP gap graphs
• Demand versus supply expansion
2. The CPI and Unemployment Rate (HO #9)
• Consumer and producer price index
• Civilian unemployment rate
• Homework problem no. 2: Knowing your CPI
Money Market and the Fed (HO #10)
• Role of the Fed
• Policy tools
• Short-run targets, long-run horizon
• Money market equilibrium
• Change in real interest rates
• Homework problem no. 3: Money market equilibrium
3. Modeling the Real Economy (HO #11)
• Consumption expenditure equations
• Investment expenditure equations
• Government expenditure equations
• Budget constraint and government finance equations
• Product market equilibrium
• Labor market equations
• Other GDP components
• Net exports and the exchange rate
4. Monetary Policy Linkages (HO #12)
• Expansionary policy effects on general economy
• Contractionary policy effects on agriculture
13. Fiscal Policy Tools and Linkages (HO #13, #14 and #15)
• Product market equilibrium
• Money market equilibrium
• Fiscal policy tools
• Expansionary fiscal policy effects on general economy
• Contractionary fiscal policy effects on agriculture
14. Macroeconomic policy and GDP Gaps (HO #16 and #17)
• Use of macro policy tools to eliminate recessionary gaps
• Use of macro policy tools to eliminate inflationary gaps
• Homework problem no. 4: Model of a closed economy
Macroeconomics of Agriculture (HO #18)
• Effects of macroeconomic trends on agriculture
• The Big 5
• Effects of agricultural trends on the macroeconomy
• Examples of existing macroeconomic models
• Commercial forecasting firms
IS/LM General Equilibrium Analysis (HO #19)
• Money market equilibrium and the LM curve
• Product market equilibrium and the IS curve
• Implications for labor market equilibrium
• Implications for financial markets
• General equilibrium
• Policy actions
• General price level and prospects for inflation
15. Modeling a Closed Economy (HO #20)
• Money and product market equilibrium conditions
• General equilibrium conditions
• Multiplier analysis
16. Modeling an Open Economy (HO #21)
• Money and product market equilibrium conditions
• General equilibrium conditions
• Multiplier analysis
19. Using Macro Theory to Model Sales (HO #22)
• Simple OLS regression model
• Microeconomic theory foundations
• Desired capital stock and gross investment expenditures
• Example: Projecting future farm machinery sales
20. Implications of Macroeconomics for Agriculture
• Events of the 1970s and 1980s
• Events of the 1990s to today
• Role played by farm commodity policy
• Implications for farmers and ranchers
• Implications for farm input suppliers
• Implications for financial institutions serving agriculture
• Implications for food processors and fiber manufacturers
• Implications for wholesale and retail trade firms
21. Microeconomic Evaluation of Performance and Growth (HO #23 and #24)
• Assessing implications of macroeconomic events for an individual firm
• Sweet 16 financial indicators
• Net present value modeling under risk
Team Presentations
• Mythical country of Lower Slobovia
• Startup business or existing business considering expansion
• Class divided into teams of 5-6 individuals
• Elect officers and assign responsibilities
• Unique economic conditions for each team
• Targets given for general equilibrium
• Implications for business conditions and investment decision
• Sensitivity of business conditions and investment decision to changing macroeconomic climate given by new targets
• Powerpoint presentations; selling feasibility of investment to the rest of the class; class evaluation forms
• Summative report with executive summary due last day of class
• Team self-evaluations
• Announcements of dates during semester (see the Remaining Schedule link on our website)
Other issues:
• There is no textbook for this class
• A series of 24 handouts are available on our website. Print copies at your leisure. I recommend that you bring a printed copy of the announced handouts to class to facilitate taking notes.
• Discussion of current events – bring me newspaper clippings of stories/issues you would like to see discussed in class. I will bring stories from the Wall Street Journal and other publications during the semester that tie into topics being covered at that time.
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