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Essay on Effects of Macroeconomics on Farming
Excerpt
Macroeconomics is the "big picture" of an economy's overall performance. The policies that governments use are of particular importance in influencing the economy as a whole. Macroeconomic tools consist of fiscal policies--the level of government spending and the balance between taxation and spending--and monetary policies--the control of the availability of money and access to credit.
Macroeconomic policies can influence U.S. agriculture in direct or indirect ways. Policies involving interest rates have a direct effect on the value of land in the agricultural sector. They also directly affect the profitability of production because agriculture is a very capital-intensive industry.
Indirectly, macroeconomic policies can affect the relative demand for and competitiveness of U.S. exports. Fiscal and monetary policies spurring high growth rates in the U.S. economy tend to increase our demand for foreign goods relative to the foreign demand for U.S. products, causing a trade deficit. Macroeconomic policies also send signals to investors worldwide about the future performance of the U.S. economy. These signals influence investors' willingness to place their money in U.S. assets, thus impacting the demand for U.S. dollars.
Introduction
In today's globalized financial markets, changes in the demand for a country's currency cause fluctuations in its exchange rate. Investment decisions can be revised rapidly as new information emerges. A huge stock of all types of assets is held at any given time, and shifts among investments create large financial movements. In recent years, the financial flows among nations have dwarfed the value of world trade in goods and services. For the United States, for example, annual merchandise trade amounts to $1 trillion, compared to annual capital flows totaling $16 trillion. There is a bottom line; however, that links all of these financial movements directly to trade. That bottom line is that the net financial flow from one country to another must be offset by the net trade balance......
