Final Exam Study Guide - Macroeconomics | AAEC 3600, Study notes of Agricultural engineering

Download Final Exam Study Guide - Macroeconomics | AAEC 3600 and more Study notes Agricultural engineering in PDF only on Docsity! AAEC 3600 Final Exam Review Macroeconomics – study of aggregate decision making  Classical economics – Negative supply shock causes a recession. If government does nothing and just waits, it will sort itself out  Keynesian economics – when we have a recession, it’s because of a drop in aggregate demand. Government should come in and replace deficit spending. “Animal spirits”  Dorfman/Schumpetarians - think we get recessions when we misallocate resources Responses to recessions:  Classical – nothing  Keynesian – replace missing demand w/ government deficit spending  D/S – either do nothing or help economy adjust more quickly GDP = Consumption + Investments + Government Spending + (X-M)  GDP = C [70%] + I [16.1%] + G [18.6%]+ (X [2.1 trillion] –M [2.7 trillion]) [-3%]  NIPA – National Income and Product Accounts – keeps track of GDP  Real GDP – GDP adjusted for inflation  Nominal GDP – GDP of a specific year Government Savings = Investment + (X-M) + Net Factor Payments from Abroad  S = I + (X-M) + NFPA  Deficit – money that the government spends more than it’s allotted budget in one year  Debt – Overall addition of deficits and money owed Currency Union – when different countries use the same currency to make trade easier  Example: EU and the euro Inflation – Inflation is taking prices of the market basket from two different years and calculating what the percent change in price was. There are many factors that make inflation a difficult term to measure accurately, including: 1. Calculation of market basket – Basket of goods may not be representative because surveys don’t include the spending of all different types of families and people 2. Outlet – whichever measure you use, inflation will show different outcomes 3. Quality shifting – price rises may not reflect inflation of certain goods that have increased in quality and therefore price also 4. Substitution effect – when the price on one good rises and sales drop, the other good will sell more in the next basket. This shows how depending upon the choice of year the basket is in, price index can show very different outcomes. 5. Base-year bias Variables  Stock – Inventory counted right at the moment  Flow – Variable counted over time (savings, income)  Real – Adjusted for inflation  Nominal – based on just that year Agribusiness and Total Economy –of total GDP, 13% of total workforce, 30% exported every year Labor Productivity  Production function – illustrates the maximum output possible given a set of inputs  Productivity – measure of output per unit of input  Total factor productivity – measure amount of output per weighted unit of input  Efficiency – measure of how close we are to the production function o Change in Productivity = Change in Efficiency + Change in Technology  Marginal Product of labor o MPl = change in output/addition of one unit of labor o Value of MPl = Productivity * MPl o Net Value of MPl = VMPl - expenses of other inputs  Net value of marginal product of labor is the MOST the company can pay a worker  Business owners are greedy and will pay more to keep the best workers with the best MPl Recession – when an economy’s GDP falls for at least 2 quarters  Business cycle – one expansion and one recession  Expansion – when an economy’s GDP rises for at least 2 quarters o Lots of developing countries have had rises in real GDP, but losses in real GDP per capita Fiscal Policy – Government’s ability to change tax rates and spending to influence the economy  Marginal tax rate – % of income tax you pay on the last dollar you earn  Average tax rate – total income tax/total income  Deductions – based off of the tax bracket that you’re in; things that the government treats as special so that you can get it off your taxes  Tax credit – get to subtract at the end from what you would have owed, better than a deduction because it reduces your tax by your tax rate Monetary Policy – set by the Federal Reserve IS-LM diagram  Represents equilibrium in the money market Dorfman’s “Story” 1. If money supply increases, it leads to inflation. 2. With inflation, money demand increases 3. When money demand increases, liquid money shifts so that interest rates are lower and Income is higher Food Assistance Programs  SNAP – supplemental nutrition assistance program. 47 million people at ~80 billion dollars a year <130% poverty  WIC – 9 million people, ~7 billion dollars  NSLP – about 68% of kids in the country get either free or reduced price lunch. 32 million kids at 11 billion dollars a year. Children <130% poverty level get free lunch while <185% get reduced price lunch  International Food Aid – questions whether we should buy American food using American transportation, or buy food in their local region for them at a lesser price with lesser cost for transportation in order to get more food overall to the hungry Environmental regulations  EPA – moniters chemicals, pesticides, fertilizers, and dust on farms  FDA – residues on food products  Army Corp of Engineers – tells farms whether or not they are allowed to fill in wetlands  CRP - Conservation reserve program – land conservation program that takes out environmentally sensitive land out of production for 10-15 years in exchange for yearly rental payments to farmers  Equip program – get money for environmental helpings; restoring stream banks, etc  Dorfman predicts that farm subsidies will be gone within 15 years and will be replaced with payments for protecting the environment Agricultural Trade Terms  COOL – Country Origin of Labeling o GI – Geographic indicator – best example is Vidalia Onions, must come from a particular set of counties in GA. Gives them a premium in supermarkets o Champagne is a geographic indicator of a region in France  Decoupling – transition payments from year to year in which the government makes up for bad seasons by paying farmers whatever they made/got paid last year. Not tied to production or price.  CAFO – Confined animal feeding operation  WTO – World Trade Organization  NAFTA – North American Free Trade Act  GMO – genetically modified organism  Organic product o Pros – less chemicals in food, better for the environment o Cons – lower yields, costs more, produce isn’t as nutritious most of the time, goes bad quicker Ag Subsidies  Most agricultural subsidies now go to funding for agricultural research  Federal government provides money for 4-H programs  Greatly expanded subsidies for crop insurance o Farmers now only pay about half of what the crop insurance costs o The whole point was to stop disaster payments, but these are still very common  Export subsidies - government bonuses on exports to other countries, makes it more profitable and attractive to farmers  Disaster payments o If a big area gets wiped out, congress usually passes extra disaster payments Food Retailing  Food retailing earns $650 billion dollars a year (4% of GDP) o About equal to the money spent on food away from home (FAH) at restaurants, etc.  About 50%-50%  Format of food retailers and percent of sales: o Supermarket = 59% o Supercenter = 23% o Convenience Store = 13%  Average supermarket o ~ 50,000 square feet o # of items = ~ 50,000 o $500,000 worth of stuff a week o 10,000 customers o 2% profit margin Restaurants  Early bird specials – If you get food a little bit cheaper, then maybe they’ll buy more drinks  Children’s menus  senior discount o #1 time where you can price discriminate – when some age groups are inelastic like seniors and families  Allowed to pay waiters a Sub – min wage ($2.13 an hour) – tips bring back to full minimum wage  Franchise o Brand name – menu, architecture o Franchise fee o Royalty share o Logistical support – full supply chain has already been figured out o Menu labels / nutrition / ingredient restrictions  Non-Franchise o Need own idea o More flexible o Owner may have to work 80-100 hours a week o If you own a restaurant, you are either going broke or getting rich  SYSCO – huge food supplier to small franchises