Which of the following best explains how investing relates to wealth inequality?

• A. Investing always reduces wealth inequality by providing equal opportunities for all individuals to grow their wealth.
• B. Investing has no impact on wealth inequality since returns are distributed equally among all participants.
• C. Investing decreases wealth inequality because only low-income individuals participate in financial markets.
• D. Investing tends to increase wealth inequality because individuals with more resources can earn higher returns and accumulate wealth faster.

Answer: (D)

Verified step by step guidance

1. Understand the concept of wealth inequality, which refers to the uneven distribution of assets and wealth among individuals or groups in an economy.
2. Recognize that investing involves allocating resources (such as money) into assets like stocks, bonds, or real estate with the expectation of earning returns over time.
3. Analyze how access to investing opportunities and the ability to take risks often differ across income groups, with wealthier individuals typically having more capital to invest and access to better financial advice.
4. Consider that higher initial wealth allows individuals to earn higher absolute returns, which can compound over time, leading to faster wealth accumulation compared to those with fewer resources.
5. Conclude that because of these factors, investing tends to increase wealth inequality rather than reduce it, as those with more resources can grow their wealth at a faster rate.