Question

In each case, what happens to an individual’s net worth? This individual receives a gift of $5,000 from a relative and deposits the funds into the savings account net worth ______. This individual uses $2,000 from the savings account to pay down the student loan. Net worth ______.

Answer 1

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Answer

This individual receives a gift of $5,000 from a relative and deposits the funds into the savings account net worth _increases_. This individual uses $2,000 from the savings account to pay down the student loan. Net worth is unchanged _


NEt worth is calculated as the difference between Assets and liablitiies of of an individual .It is the difference between what we own and what we owe .
NET WORTH = Assets - liabilities

When an indiviual receives a gift , his assets are increased but liabilitites remain the same . THereofre his net worth increases .
WHen an individual uses his savings accounts money to pay his liabilitiies m his net worth will remain the same . THis is because his assets and liabilities both will be decreased by the same amount . The Difference between them remains the same .