Question

John is a researcher at a university, and after he paid taxes, his income and interest from financial assets was \(\$ 55,000\) in \(2013 .\) At the beginning of \(2013,\) he owned \(\$ 3,000\) worth of financial assets. At the end of \(2013,\) John's financial assets were worth \(\$ 5,000\) a. How much did John save during 2013 ? b. How much did John spend on consumption goods and services?

Short answer

John saved \$ 2,000 \$$ and spent \$ 53,000 \$$ on consumption goods and services in 2013.

Step-by-step solution

Determine Financial Assets Growth

Calculate the difference in the value of John's financial assets from the beginning to the end of 2013: Assets at end of 2013 = \$ 5,000 \$$ Assets at beginning of 2013 = \$ 3,000 \$$ Increase in financial assets = \$ 5,000 \ - \$ 3,000 \ = \$ 2,000 \$$

Calculate John's Savings

Since the increase in financial assets represents John's savings for 2013, the amount saved is equal to the increase calculated in Step 1. John’s savings in 2013 = \$ 2,000 \$$

Calculate Total Spending

John's total income after taxes and interest from financial assets is given as \$ 55,000 \.$$ To find out how much he spent on consumption goods and services, subtract his savings from this total income: Total income = \$ 55,000 \$$ Savings = \$ 2,000 \$$ Consumption expenditure = \$55,000 \ - \$ 2,000 \ = \$ 53,000 \$$

Key concepts

savings calculation

To calculate savings, we need to understand the change in financial assets over a specified period. For example, in John's case, we look at the growth in his financial assets from the beginning to the end of 2013. Savings essentially refer to the portion of income that is not spent on consumption goods and services. Instead, it is set aside either as cash, bank deposits, or investments, contributing to financial security.

To find the savings, start by considering the initial and final values of assets. Here, John started 2013 with \(3,000 in financial assets and ended the year with \)5,000. The increase in assets, computed as \({5,000 - 3,000} = 2,000\), is John's savings for the year 2013. By saving, individuals like John ensure they have a financial cushion for future needs or unforeseen expenses.

In a broader sense, tracking savings helps in maintaining financial discipline and preparing for long-term goals such as retirement, education, or major purchases.

consumption expenditure

After calculating savings, the next step is to determine consumption expenditure, which is the total amount spent on goods and services. This can be derived from subtracting savings from the total income. In John's scenario, his total income for 2013 after taxes was \(55,000.

Consumption expenditure indicates how much an individual spends on daily living costs, including food, housing, transportation, and other personal needs. It is crucial for assessing lifestyle and budgeting needs. To calculate John's spending on consumption goods and services, subtract his savings from his total income:
\text{Consumption Expenditure} = \text{Total Income} - \text{Savings} \ = {55,000 - 2,000} = 53,000.

Hence, John spent \)53,000 on consumption in 2013. Monitoring consumption expenditure helps individuals manage their finances better and make conscious spending decisions.

financial assets growth

Financial assets growth refers to the increase in value of assets over time. These assets can include savings accounts, stocks, bonds, and other investments. Growth in financial assets can result from additional contributions, interest earnings, or capital gains.

In John's case, his financial assets grew from \(3,000 at the beginning of 2013 to \)5,000 by the end of the year. This reflects a growth of $2,000 in his assets. Understanding this growth is essential for evaluating financial health and planning.

Financial assets growth aids in wealth accumulation and can be influenced by various factors such as economic conditions, investment performance, and personal saving habits. Continuous growth of financial assets ensures that individuals can meet long-term financial goals and handle emergencies effectively.