The Capitalist Revolution Flashcards
How has incomes changed between regions over the last thousand years?
A thousand years ago the world was flat, economically speaking.
There were differences in income between the regions of the world, but the differences were small compared to what was to follow.
What is a good measure of inequality in a country?
The 90/10 ratio.
What is the 90/10 ratio?
We define as the average of the richest 10% divided by the average income of the poorest 10%.
What is GDP per capita?
Is a measure of the total goods and services produced in a country, which is then divided by the country’s population.
What is GDP?
GDP measures the output of the economy in a given period, such as a year.
What is a problem of using GDP per capita as a measure of living standards?
GDP per capita measures average income but that is not the same as the disposable income of a typical person.
What is disposable income?
Disposable income is the amount of wages or salaries, profit, rent, interest and transfer payments from the government or from others received over a given period such as a year, minus any transfers the individual made to others.
Why is a disposable income a good measure of living standards?
Because it is the maximum amount of food, housing, clothing and other goods and services that the person can buy without having to borrow- that is, without going into debt or selling possessions.
Is our disposable income a good measure of our wellbeing?
Income is a major influence on wellbeing because it allows us to buy the goods and services that we need or enjoy.
But it is insufficient, because many aspects of our wellbeing are not related to what we can buy.
What does disposable income leave out when measuring wellbeing?
The quality of our social and physical environment such as friendships and clean air.
The amount of free time we have to relax or spend time with friends and family.
Goods and services that we do not buy such as healthcare and education, if they are provided by a government.
Goods and services that are produced within the household, such as meals or childcare.
Why does Absolute income matter for wellbeing?
It matters because we know from research that people care about their relative position in the income distribution.
They report lower wellbeing if they find they earn less than others in their group.
How is GDP per capita a better measure of living standards than disposable income?
GDP includes the goods and services produced by the government such as schooling, national defence and law enforcement. They contribute to welling but are not included in disposable income.
How do you calculate nominal GDP?
The sum of price times quantity for all the goods and services that we count.
What is Real GDP?
Gdp adjusted for inflation which we can use to see whether the economy is growing or shrinking.
How do we calculate growth rate?
Change in income / original level of income.
