Question

In: Economics

Identify each of the following acts as representing either saving or investment and explain why. a....

Identify each of the following acts as representing either saving or investment and explain why.

a. Fred uses some of his income to buy government bonds.

b. Julie takes some of her income and buys mutual funds.

c. Alex purchases a new truck for his delivery business using borrowed funds.

d. Elaine uses some of her income to buy stock in a major corporation.

e. Henrietta hires a builder to construct a new building for her bicycle shop.

Solutions

Expert Solution

a. Fred uses some of his income to buy government bonds.
- Savings

b. Julie takes some of her income and buys mutual funds.
- Savings

c. Alex purchases a new truck for his delivery business using borrowed funds.
- Investment
Reason : It is considered an investment because Alex is borrowing funds to buy a capital for his business which is not easily convertible to liquid cash and this capital will earn him some return as the business progresses.  

d. Elaine uses some of her income to buy stock in a major corporation.
- Savings

e. Henrietta hires a builder to construct a new building for her bicycle shop.
- Investment
Reason : It is investment becuase Henrietta is hiring a builder to construst a new building which is money spent on capital which will yield return in the future.

Reason for options a, b, and d : Savings, because each individual is deferring a part of their income in a venture which is highly liquid and earns interest.

Rahul Sunny answered 2 months ago
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