Unit 1 - The Capitalist Revolution

Question 1

The Capitalist Revolution + its three main features

Answer 1

The emergence of a new economic system in which private property, markets and firms play a leading role

• The Capitalist Revolution can explain the upward growth trend for GDP/capita; productivity of labour; connectivity between parts of the world; impact of the economy on the environment

Question 2

GDP

Answer 2

Measure of the total goods and services produced in a country
- it can be used as a unit of measure for living standards
- corresponds to the total income of the total population of a country

Question 3

Disposable income

Answer 3

What you can actually buy with the money you receive
- (wages, profit, rent, interest and transfer payments) - (taxes)

• It’s a good measure of living standards

Question 4

Nominal GDP and Real GDP

Answer 4

Nominal GDP - Sum of (price x quantity of all goods and services produced)
Real GDP - Nominal GDP/Inflation rate

Question 5

Adam Smith and the invisible hand

Answer 5

• Smith argued that prosperity arises from the pursuit of self-interest under free market conditions
• The invisible hand - the workings of the market mechanism in coordinating the economic actors in a market economy
• Smith argued for the division of labour and specialization

Question 6

Capital goods

Answer 6

Private property - durable inputs used in producing goods and services (such as equipment, buildings)

Question 7

How does the capitalist economic system work?

Answer 7

• Inputs and outputs are private property
• Firms use markets to sell outputs
• Production takes place by using privately owned capital goods

Question 8

How can capitalism make people better off?

Answer 8

• The gains from specialization
• The permanent technological revolution