2. Define wealth, income, saving. Differentiate between gross investment and net investment.

Solutions

Expert Solution

Income is a flow of money going to factors of production:

Wages and salaries paid to people from their jobs
Money paid to people receiving welfare benefits such as the state pension and tax credits
Profits flowing to businesses and dividends distributed to shareholders
Rental income flowing to people who own and lease out property
Interest paid to those who hold money in deposit accounts or who own bonds etc.

Wealth is a stock concept – it is a large amount of money or valuable possessions and can be held in different ways:

Savings held in bank deposit accounts
Ownership of shares issued by listed companies and equity stakes in private businesses
The ownership of property
Wealth held in bonds
Wealth held in occupational pension schemes and life assurance schemes

Savings, according to Keynesian economics, are what a person has left over when the cost of his or her consumer expenditure is subtracted from the amount of disposable income earned in a given period of time.

Gross investment spending is total investment on new capital inputs whereas net investment is gross investment adjusted for capital consumption (depreciation), so difference between them is depreciation.

Rahul Sunny answered 1 year ago

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