Unit 1 - The Capitalist Revolution

Question 1

What does GDP/Disposable Income (DI) leave out (limitations)

Answer 1

1. The quality of our social and physical environment such as friendships and clean air
2. Amount of free time
3. Goods and services that we do not buy, if they are provided by a government
4. Goods and services that are produced within the household, such as meals or childcare
5. Violence and crime
6. Political freedoms
7. Life satisfaction

Question 2

What is Disposable Income (DI)

Answer 2

Income after tax and receiving Government transfers

Question 3

How do you calculate Nominal GDP

Answer 3

Price in the year x Quantity of same year
P1 x Q1
P2 x Q2

Question 4

How do you calculate Real GDP

Answer 4

Price in a single year x Quantity of desired year
P1 x Q1
P1 x Q2

Note: P1 x Q2 = (NGDP) [P2 x Q2] x P1/P2 = Q2 x 1/P2/P1 (GDP Deflator)

Question 5

What is technology

Answer 5

How one combines labour, capital, materials and other inputs to create an output.

Question 6

What is technological progress

Answer 6

A change in technology that reduces the amount of resources (labour, machines, land, energy) required to produce a given amount of output

Question 7

What is Capitalism

Answer 7

An economic system based on private ownership of assets and labour services, which organises firms into markets for predominantly private benefit

( Econ system with private property ( markets ( firms )))

Question 8

What is the capitalist revolution

Answer 8

The emergence and eventual global spread of a way of organizing the economy that we now call capitalism

Question 9

Why might capitalism be less dynamic

Answer 9

• Private property is not secure: Weak enforcement of 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 political connections or their privileged birth: unable to deliver high-quality goods and services at a competitive price

Question 10

GDP per capita vs GNP per capita

Answer 10

GDP is production within a country and “per capita” includes citizens and non-citizens

GNP = GDP + output produced abroad attributable to citizens - output produced locally attributable to abroad. “per capita” refers to only citizens

Question 11

How can we measure inequality

Answer 11

Gini Coefficient - 0 is perfect equality and 1 is perfect inequality

90/10 ratio - 90th percentile divided by 10th percentile to show the ratio (ratio of 5 would mean top 90% have over 5 times as much income as bottom 10%)