Question

The wealth of an economy is generated by real assets. The availability of tradable financial assets has no effect on the wealth of an economy. Do you agree? Why or why not?

Answer 1

Here, first let's have a look at the meaning of Real assets and Financial assets.

Real assets are physical assets that have an intrinsic worth due to their substance and properties. Real assets include precious metals, commodities, real estate, land, equipment, and natural resources.

whereas,Financial assets are a liquid property that derives value from a contractual right or ownership claim. Stocks, bonds, mutual funds, bank deposits, investment accounts, and good old cash are all examples of financial assets. They can have a physical form, like a dollar bill or a bond certificate, or be nonphysical—like a money market account or mutual fund.

Now, if we compare both the types of assets,

Firstly,Real assets tend to be more stable than financial assets.Secondly, Inflation, shifts in currency values, and other macroeconomic factors affect real assets less than financial assets.

Apart from this,Real assets are particularly well-suited investments during inflationary times because of their tendency to outperform financial assets during such periods.

From the above given reasons it can be said that real assets help the economy in generating the wealth in a mature way still we can overlook the advantages of Financial assets like liquidity,easy to convert apart from that the cashflow generated by the financial assets experience a constant growth in comparision to real assets where the factor like depericiation,devaluation etc. may play roles.

Hence,in a nutshell it can be said that definitely Real assets are the base of any economy for wealth creation, the financial assets at the same time has crucial role to play in the upcoming scenario.