Question

Distinguish between stock and flows. Give an example of each.

Class XII
National income

Answer 1

Economics, business, accounting, and related fields often distinguish between quantities that are stocks and those that are flows. These differ in their units of measurement. A stock variable is measured at one specific time, and represents a quantity existing at that point in time (say, December 31, 2004), which may have accumulated in the past. A flow variable is measured over an interval of time. Therefore a flow would be measured per unit of time (say a year). Flow is roughly analogous to rate or speed in this sense. For example, U.S. nominal gross domestic product refers to a total number of dollars spent over a time period, such as a year. Therefore it is a flow variable, and has units of dollars/year. In contrast, the U.S. nominal capital stock is the total value, in dollars, of equipment, buildings, inventories, and other real assets in the U.S. economy, and has units of dollars. The diagram provides an intuitive illustration of how the stock of capital currently available is increased by the flow of new investment and depleted by the flow of depreciation.

Answer 2

The following are the differences between Stock and Flows:

Stocks:

1. Stocks associate to a point of time.

2. It does not have any dimension of time.

3. Stocks are influenced by flows for example, the higher is the saving, and the higher is the stock of wealth.

Flows:

1. They are associated with a span of time.

2. They hold a dimension of time.

3. Stocks effect flows.