Unit 1: THE CAPITALIST REVOLUTION

Question 1

What is GDP?

Answer 1

The market value of the output produced for final consumption in an economy in a given period of time.

Question 2

What is final consumption?

Answer 2

The final product sold to final customer for consumption (e.g. selling bread to final customer for consumption - not for reselling - ignoring ingredients, such as yeast).

Question 3

What is GDP per capita?

Answer 3

The average annual income of a citizen in an economy at a certain point of time, over time.

Question 4

What is nominal GDP?

Answer 4

GDP, taking no account of inflation.

Question 5

What is nominal GDP (equation)?

Answer 5

Price X Quantity (pq).
p1q1 = nominal GDP (year 1).
p2q2 = nominal GDP (year 2).

Question 6

What is real GDP?

Answer 6

GDP, taking into account inflation.

Question 7

What is real GDP (equation)?

Answer 7

Price X Quantity (pq). NOminal GGDP X GDP Deflator.
p1q1 = real GDP (year 1).
p1q2 = real GDP (year 2).

Question 8

What is disposable income?

Answer 8

The income available after paying taxes & receiving transfers from the government.

Question 9

How is GDP compared?

Answer 9

• Between countries at a point in time: taking into account price difference between the two countries (e.g. £10 gets you one meal in the UK, while the equivalent in Rupees gets you 4 meals in India).
• Within a country over time: isolate the changes in the prices of goods & services.

Question 10

What are drawbacks of GDP?

Answer 10

• Ignores social & physical environment (e.g. friendships, clean air).
• Leisure time.
• Goods & services that are produced in the household (e.g. meals & childcare).
• Violence & crime.
• Political freedom.

Question 11

What is capitalism?

Answer 11

An economic system based on private ownership of assets & labour services, with firms entering markets for private benefit.

Question 12

What is the capitalist revolution?

Answer 12

The emergence & eventual global spread of organising the economy in a capitalist manner.

Question 13

What are drawbacks of capitalism?

Answer 13

• Private property isn’t secure: weak enforcement of the rule of law & contracts, or seizures of assets by criminal elements or by government bodies.
• Markets aren’t competitive: failure to offer the incentives that make a capitalist economy dynamic.
• Firms are owned and managed by people who are inherited/given unearned wealth: unable to deliver high-quality goods & services at a competitive price.