International Baccalaureate (IB) Practice Exam

What describes a key difference between income and wealth?

1. Income can be invested to generate wealth.

2. Wealth is dependent on monthly salary.

3. Income is guaranteed while wealth fluctuates.

4. Wealth accumulates without effort.

The correct answer is: Income can be invested to generate wealth.

A key difference between income and wealth lies in the relationship between the two. Income refers to the money received on a regular basis, such as a salary, wages, or investments. This income can be utilized to create additional wealth by being invested in assets such as stocks, real estate, or other investments that accumulate value over time. Wealth, on the other hand, refers to the total value of all assets owned by an individual or entity, minus any liabilities. Unlike income, which is often obtained through work or earnings, wealth represents accumulated resources and can be influenced by various factors including investment decisions, savings rates, and market conditions. The other options do not accurately represent the core relationship between income and wealth. Wealth is not solely dependent on a monthly salary, as individuals can accumulate wealth through various means beyond their income. Additionally, income is not guaranteed, as it can be subject to job loss or fluctuations due to economic conditions, while wealth can indeed fluctuate based on market values but is not inherently guaranteed. Lastly, while it is possible for wealth to accumulate passively (for instance, through investments that gain value over time), this statement oversimplifies a more complex reality where active management and effort are often involved in building and maintaining wealth.