Question

Give reasons for following(6MARKS)
(i) Capital is stock but capital formation is flow variable.

(ii)Income is a flow variable and flow of income is circular.​

Answer 1

1. Capital formation is a flow,because it is measured over a period of time while capital is stock because it is a quantity measured at a specific point of time.
2. The circular flow of income or circular flow is a model of the economy in which the major exchanges are represented as flows of money, goods and services, etc. between economic agents. The flows of money and goods exchanged in a closed circuit correspond in value, but run in the opposite direction.

Answer 2

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(i)Capital formation is a flow,because it is measured over a period of time while capital is stock because it is a quantity measured at a specific point of time.

(ii)The circular flow means the unending flows of production of goods and services, income and expenditure in an economy. It shows the redistribution of income in a circular manner between production unit and households.

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