Summary A Level Economics Theme 4: Capitalism

Capitalism, growth and inequality

-​ Capitalists are individuals who use the factors of
production in an attempt to make money.
-​ When economists refer to capitalism, they are
describing an economy populated with capitalists.


Capitalism and markets


-​ Command economies are not capitalist because all FOP
are allocated by the state.
-​ Mixed economies are partially as some FOP are
allocated by the state whereas others are allocated by
the price mechanism.
-​ Free market economies are completely capitalist as all
FOP are allocated by the price mechanism.




Capitalism and economic growth.


-​ Capitalists invest their money in the economy, which
leads to an outward shift in aggregate demand.
-​ This creates a positive multiplier effect as an
increase in investment leads to an increase in
employment, and hence consumer spending due to greater
incomes and so on.
-​ Finally, the profit motive encourages businesses to
improve the quality and the efficiency of the factors
of production.
-​ This leads to an outward shift in LRAS and therefore
an increase in RGDP.