SOUTHERN JOURNAL OF AGRICULTURAL ECONOMICS DECEMBER, 1980 INFLATION, CASH FLOWS, AND GROWTH: SOME IMPLICATIONS FOR THE FARM FIRM

As farm sector prices continue to increase at consequences of inflation. The suggestions are rates higher than any since World War II, at- that lenders (1) institute variable interest rates tention is being given to the cause of the price for long-term loans and (2) adopt increasing increases and their structural impacts on the rather than constant loan repayment schedules farming sector. Land, a major component of that more nearly match borrowers ' income farm assets, has been the focus of many streams with their loan repayments. Support studies examining the effects of inflation. for these two recommendations is deduced in Melichar showed current increases in land our study. prices to be consistent with productivity gains. Lee and Rask illustrated that even though cur- INFLATION AND FIRM LIQUIDITY rent levels of land prices may be justified, firms may have negative cash flows, especially Prng Nondepreciatig Durables if loans are repaid on level repayment plans. Suppose a decision maker can acquire an Current inflationary conditions led Robison to asset that is expected to return a net dollar conclude that though current land prices may amount R for n periods, after which it can b