Macroeconomic Aims Additional Notes

Explanation that Economic Growth Clashes with Sustainability To increase production, firms would employ more factors of production resources such as land which refers to all natural resources used in production, as well as any minerals, water, forests, or other resources (e.g. precious metals, natural gas, coal, crude oil) that are found in or on the land. Therefore, with a higher level of production, more resources are depleted. Moreover, a higher level of production would also result in a higher level of pollution. This is especially true for countries that are unwilling to decouple growth, and thus still rely on non-renewable energy for production e.g. some oil-importing countries rely on oil as its main energy source for production thus carbon dioxide emissions remain substantial, thereby contributing to global warming, whose effects will be suffered by future generations. Explanation that Sustainability is difficult to achieve because sustained growth is difficult to achieve Countries may suffer negative economic growth if they promote sustainability. Declining export revenues (X) from oil will adversely affect their economic growth prospects and national budgets. This is because these countries will face a significant decrease in AD if they decouple from carbon and thus face a more than proportionate decrease in production and income via the reverse multiplier process, which is based on the proposition that a fall in expenditure leads to lower income, and lower income leads to a further fall in expenditure. Thus, these countries might not be willing to suffer a potential recession in the short term to achieve sustainable economic growth in the long term. Countries might not achieve sustainable economic growth also because their long run aggregate supply (LRAS) might not increase sufficiently to have the spare capacity to sustain the increase in actual growth. This might be because of the lack of investment in infrastructure and technology necessary to achieve higher productive capacity. As a result, high inflation might occur. When LRAS increases much slower than the increase in AD, despite the increase in real output, the general price level would increase significantly. This is because firms would still compete fiercely for the resources needed to increase production, resulting in higher cost of productio