Macroeconomics vs. Environmental-Macroeconomics

Abstract

This paper illustrates the differences in policy outcomes that would follow when environmental macroeconomic frameworks are employed in lieu of standard macroeconomic frameworks. The non-recognition of real environmental capacity constraints could explain, at least in part, the inability of policies derived from standard frameworks to deliver on certain macroeconomic goals, especially those pertaining to inflation. Herein environmental considerations are internalized into the analytic frameworks of factor-utilization, aggregate demand and aggregate supply. The analyses reveal restricted domains for national income and limited environmental capacity as potential sources of inflation. Hence environmental capacity expansion warrants specific attention. Illustrations are made with reference to the Australian economy and her response to global financial crisis over the period 2008-09.

Keywords: macroeconomics, environmental macroeconomics, environmental capacity