National income — Edexcel A-Level Economics A
Verified courseTeaching note checked against the official specification.
National income explained
Income is a flow earned over a period, such as a monthly wage, rent received or interest on savings.
Read the full explanation
Wealth is a stock of accumulated assets owned at a point in time, such as property, shares, savings balances and pension funds, minus liabilities. A person can have high wealth but modest income, for example a retired homeowner with a valuable house and small pension, or high income but low wealth, for example a young worker with a large salary and no assets. Income can add to wealth when it is saved rather than spent, and wealth can generate income through rent, dividends or interest. The distinction matters because inequality in income and inequality in wealth can differ, and because wealth is measured at a moment while income is measured across a period.
Your focus
- Define income as a flow and wealth as a stock.
- Explain how income and wealth can diverge using examples.
- Describe how saving and asset returns connect income to wealth.
National income exam tips
Marking Points
- Defines income as a flow received over a period of time, giving examples such as wages, rent, interest or profit.
- Defines wealth as a stock of accumulated assets owned at a point in time, net of liabilities.
- Explains that income is a flow variable while wealth is a stock variable, so they are measured differently.
- Uses an example showing that high income need not mean high wealth, and high wealth need not mean high income.
- Explains that saving part of income can add to wealth, and that wealth can generate further income through rent, dividends or interest.
Examiner Tips
- 💡Label each example as either a flow (per week, per year) or a stock (at a given date) to keep the distinction clear.
- 💡Use a contrasting pair, such as a high-earning saver and a retired asset owner, to show income and wealth can diverge.
- 💡Remember that saving links the two concepts by converting part of an income flow into a wealth stock.
Common Mistakes
- Treating income and wealth as the same thing: income is a flow over time, while wealth is a stock at a point in time.
- Assuming a high earner must be wealthy: income may be spent rather than saved, so wealth can remain low.
- Forgetting to subtract liabilities: wealth is net assets, so debts reduce the stock of wealth.
- Believing wealth cannot create income: assets such as property and shares generate rent, dividends and interest.