Economics Assignment - Environmental Policy

Added on - 28 May 2020

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Running head: ECONOMICS ASSIGNMENTEconomics AssignmentName of the universityName of the studentAuthor Note
1ECONOMICS ASSIGNMENTAnswer 1:The government of a country should impose some policies to control environmentaldegradation. Those policies will also protect welfare of people and environmentalsustainability. On the other hand, a country’s economic growth is measured by its real grossdomestic product (GDP). Here, the government is planning to implement a policy to reduceair pollution. According to this policy, factories will reduce their use of dirty fuels. However,after implementing this policy, real GDP of a country might be affected. Moreover, it is verydifficult for a government to apply a proper environmental policy (Kraft, 2017). There is acomplementary nature between economic prosperity and a healthy natural environment. Thestandard of living of a country depends on several economical, environmental and politicalfactors. To produce a good or service, various economical factors are needed. These arehuman capital, physical capital, natural resources and technologies. Moreover, thegovernment plays an important role on production process for a country. Hence, they affectthe growth rate of a country by implementing various governmental policies.The chief interest of environmental policy makers is to analyse the economic effectsrelated to these policies. Environmental policy can be seen as a burden on short-term ormedium-term economic activities in some traditional approaches. This is because this policyincreases production costs without increasing output (Stern & van Dijk, 2017). Moreover, itrestricts a firm’s production technologies and total outputs. This traditional environmentalpolicy forces various firms to scarify different inputs to control pollution. Moreover,production technology may also be hampered due to this policy and as a result, performancestandard of those firms will be negative. Here, production technology of some factories isbased on fuels, which further generate air pollution. Hence, by implementing environmentalpolicy, the government can restrict the use of fuels. This will further change the productiontechnologies for those factories and as a result, total output will be decreased. As total
2ECONOMICS ASSIGNMENTproduction of a country decreases, real GDP of that country will also be decreased. Hence, inthis scenario, environmental policy has a negative impact on a country’s economic growth.However, according to some modern theories, environmental policy actually helps a factoryto produce more (Bergstrom & Randall, 2016). According to some economists, restriction onsome factor inputs will further encourage a firm to innovate more production methods.Environmental policy has some positive indirect effects on a country’s economy. Due to newenvironmental policy, a firm should change its production process by innovating newproduction technologies. This will further help a firm to produce more output with limitedresources and earn more profits. Furthermore, this increasing amount of total production willhelp a country to improve its real GDP. However, different environmental policies havedifferent impacts on a country’s production process (Panayotou, 2016). Hence, it is veryimportant for policy makers to analyse all possible effects before implementing anenvironmental policy. Moreover, empirical analysis of previous data will be beneficial forthose policy makers to understand an accurate outcome.Answer 2:i)Natural rate of unemployment indicates a combination of structural, surplus andfrictional unemployment. This type of unemployment can be seen in both developed anddeveloping countries. On the other hand, a recession period indicates a condition when anentire economy is facing a decline in activity. Under this recession period, a country’s GDPdecreases. Moreover, all business organisations are facing a decline in their sales andrevenues. The level of investment and consumer demand becomes also very low during thisperiod. Due to this low level of demand, firms reduce their production (Watson & Deller,2017). Moreover, those firms cut off their labour power to maintain a normal level of profit
3ECONOMICS ASSIGNMENTunder recession period. Hence, job opportunity of various labours also declines. As a result,many people lose their jobs. Moreover, those unemployed workers face difficulties to findout new jobs (Marques, Lima & Troster, 2017). Hence, from some practical incidence it canbe seen that the rate of natural unemployment of any country has sharply increased after arecession period. Moreover, higher rate structural unemployment can be seen within and afterthis recession period.ii)During a recession period, various economic factors of a country have declined.Those economic factors are real gross domestic product (GDP), employment level, realincome and overall transaction levels of this country. There are various macro economicfactors which help a country to face recession period. However, the chief reason of arecession period is inflation. The general price level of a country will be increased during thisinflationary situation (Campbell, 2017). Moreover, increasing level of unemployment anddecreasing rate of GDP will lead a country into a recession period.However, recession on the other side helps a country to reduce its inflationarysituation. During a recession period, aggregate demand of a country declines. Moreover, dueto high level of unemployment level and huge competition among those unemployed labours,wage rate becomes low (Ferrara, Marcellino & Mogliani, 2015). Price level also has declineddue to low level of demand. As a result, overall inflation rate of this country declines.
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