Financial Markets - The Demand for Money - Semantic Traps: Money, Income and Wealth

4 important questions on Financial Markets - The Demand for Money - Semantic Traps: Money, Income and Wealth

What is income? Is it a flow or stock variable?

  • Income is what you earn from working plus what you receive in interest and dividends.
  • It is a flow—that is, it is expressed per unit of time.

What is saving? Is it a flow or stock variable?

  • Saving is that part of after-tax income that is not spent.
  • It is also a flow(=stroomgrootheid).
NB Savings is sometimes used as a synonym for wealth (a term we will not use in this book).

What is (financial) wealth? Is it a flow or stock variable?

  • Your financial wealth, or simply wealth, is the value of all your financial assets minus all your financial liabilities.
  • In contrast to income or saving, which are flow variables, financial wealth is a stock variable(=voorraadgrootheid).
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What is investment and what financial investment?

  • Investmentis a term economists reserve for the purchase of new capital goods, from machines to plants to office buildings.
  • When you want to talk about the purchase of shares or other financial assets, you should refer them as a financial investment.

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