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What Would Be The Effect On Economy If Government Has To Obey Carbon Emissions To Improve The Global Climate?

Consider an economy that is initially at equilibrium level of real GDP. Using an aggregate demand and aggregate supply diagram, graphically illustrate and discuss the short-run and long-run effects of the mentioned condition.

3 Comments »

  1. avatar
    is it 5 yet? Says:
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    It is an interesting question.
    I suspect we have two primary effects in the short term. 1- we have a demand for technology and investment in goods and services to help meet the new guidelines. 2- we have higher costs for goods and services where increased cost of production results from meeting the new requirements. Which will be the primary issue? I suspect the investment and costs initial exceed the benefits of the investment, but of course the investment is intended to be long term. So in the long term we have less pollution (wether this prevents global warming or not, we can assume that less pollution is still a social benefit), and we have some new technology perhaps leading to lower cost energy.

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    A better question would be: “What would be the effect on the ecosystem if government does not take steps to restrain carbon emissions to improve the global climate?”
    Where am I going? …And why am I in this handbasket?

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    for developed countries, the effect will not be much felt. but for countries that still rely much on burning fossil fuel for energy, that would put them in a position where they have to invest huge amount of money in improving their position on the issue of carbon emission. Whatever step they make to negate the effect of the pollution they throw in the atmosphere will cost money, some of the plan of action i can see are as follows.
    on the assumption that economy is at an equilibrium, there will be a shift in spending. lesser money will be allocated for other things, whether education, healthcare whatever so they have money to put in infrastructure dev’t. this scenario puts the economy still at equilibrium, there is just a shift in spendng priorities.
    If, the government is not ready to slash budget, then an option is to increase taxes on certain goods, specially those that emit too much carbon, and give tax breaks to those that help the environment.
    now as to graphing it, you do it.

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