Which of the following statements best explains why income alone does not determine wealth?

• A. Wealth is only determined by the amount of money earned each year.
• B. Wealth is determined solely by government policies.
• C. Income and wealth are always equal for every individual.
• D. Wealth depends on both income and how much is saved or invested over time.

Answer: (D)

Verified step by step guidance

1. Understand the difference between income and wealth: Income is the flow of money earned over a period (such as wages or salary), while wealth is the stock of assets owned at a point in time (such as savings, property, and investments).
2. Recognize that income alone does not determine wealth because wealth accumulates over time through saving and investing part of the income rather than just earning it.
3. Consider that government policies can influence wealth but do not solely determine it; individual saving behavior and investment decisions also play crucial roles.
4. Note that income and wealth are not always equal because a person can have high income but low wealth if they spend most of their earnings, or low income but high wealth if they have accumulated assets over time.
5. Conclude that the best explanation is that wealth depends on both income and how much of that income is saved or invested over time, highlighting the dynamic relationship between earning and accumulating assets.