Question 9.5 Choose the correct answerRead the following statements about income and wealth and select the correct option.

Question

BlackTom AI · Accepted Answer

Wealth is a stock and savings are a flow, so wealth rises when net savings are added to the existing stock. Key concepts: a stock variable (wealth) measures a quantity at a point in time; a flow variable (income, savings, depreciation as recorded in accounts) measures a quantity per unit of time. The standard accounting identity linking these is written in change form:
ΔWealth = Savings + Revaluations (capital gains) − Depreciation (consumption of fixed capital).
Step-by-step reasoning:
1. Define terms: Wealth (W) = total assets minus liabilities at a point in time (stock). Savings (S) = part of income not consumed in a period (flow). Capital gains (CG) = changes in asset prices that revalue existing wealth (revaluation term). Depreciation (D) = loss of value of capital over time (recorded as a flow).
2. Starting from wealth at time t − 1, wealth at time t equals previous wealth plus net additions during the period:
Wt = Wt−1 + S + CG − D.
3. From this identity, an increase in savings S (holding other terms constant) directly raises ΔWealth, so wealth increases with savings.
Why option b is correct: it states the direct causal relationship captured by the identity—saving in a period increases the stock of wealth. Why the other options are incorrect:
- a: Partially right about income being a flow and wealth being a stock, but incorrect to call depreciation a stock—depreciation is a flow (consumption of capital over the period).
- c: Incorrect because current savings do add to wealth; wealth is the accumulation of past and current net savings (plus revaluations and minus depreciation).
- d: Misstated—capital gains are not "wealth" itself but a revaluation component that changes wealth (they cause changes in wealth, not constitute the stock by themselves).
Conclusion: The correct answer is b. Wealth increases with savings, which matches the provided answer.

Question 9.5 Choose the correct answerRead the following statements about income and wealth and select the correct option.单项选择题

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