Unit 1 - The Capitalist Revolution Flashcards
How is growth rate calculated?
change in income/original level of income
How is nominal GDP calculated?
∑𝑖𝑝𝑖𝑞𝑖
In what things can one see an upward turn (like the hockey stick) on a graph?
gross domestic product per capita
productivity of labour (light per hour of work)
connectivity of the various parts of the world (the speed at which news travels)
impact of the economy on the global environment (carbon emissions and climate change)
What are capital goods?
In a capitalist economy, an important type of private property is the equipment, buildings, and other durable inputs used in producing goods and services.
What are institutions?
The different sets of laws and social customs regulating production and distribution in different ways in families, private businesses, and government bodies.
What are markets?
A means of transferring goods or services from one person to another.
What are possible explanations for where capitalism is less dynamic?
Private property is not secure: There is weak enforcement of the rule of law and of contracts, or expropriation either by criminal elements or by government bodies.
Markets are not competitive: They fail to offer the carrots and wield the sticks that make a capitalist economy dynamic.
Firms are owned and managed by people who survive because of their connections to government or their privileged birth: They did not become owners or managers because they were good at delivering high-quality goods and services at a competitive price. The other two failures would make this more likely to occur.
What are purchasing power parity (PPP) prices?
Estimates of GDP per capita in a common set of prices, the idea is to achieve parity (equality) in the real purchasing power.
What are the three characteristics of capitalism?
private property
markets
firms
What are three important aspects of markets?
one person’s transfer of a good or service to another is directly reciprocated by a transfer in the other direction
they are voluntary: Both transfers—by the buyer and the seller—are voluntary because the things being exchanged are private property
the exchange must be beneficial in the opinion of both parties
What does disposable income leave out? (Why is it not a good representation of 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 (predominantly provided by women)
What does GDP include?
The goods and services produced by the government, such as schooling, national defence, and law enforcement.
(They contribute to wellbeing but are not included in disposable income.)
What does GDP measure?
The market value of the output of final goods and services in the economy in a given period.
What does private property mean for you?
enjoy your possessions in a way that you choose
exclude others from their use if you wish
dispose of them by gift or sale to someone else …
… who becomes their owner
What does too big to fail mean?
Said to be a characteristic of large banks, whose central importance in the economy ensures they will be saved by the government if they are in financial difficulty. The bank thus does not bear all the costs of its activities and is therefore likely to take bigger risks.
What is a centrally planned economic sytem?
When the government is the institution controlling production, and deciding how goods should be distributed, and to whom.
What is a democracy?
A political system, that ideally gives equal political power to all citizens, defined by individual rights such as freedom of speech, assembly, and the press; fair elections in which virtually all adults are eligible to vote; and in which the government leaves office if it loses.
