Stocks and flows

The purchase of new machines during a year is measured over a period, so it is a flow variable. In national accounting, such expenditure is part of investment during that year. The machines owned by the company at a particular date would be capital stock, but the purchase occurring throughout the year is a flow.

The bank balance on 30 June is measured at a specific date, so it is a stock. Deposits made during June are added over the course of a month, so they are a flow. The same monetary item can therefore be classified differently depending on whether it is a balance at a date or an amount recorded during a period.

Annual income and monthly expenditure are both measured over defined periods: a year and a month respectively. Therefore, both are flow variables. Bank balances, wealth, capital stock, and inventory generally refer to amounts existing at a particular time and are therefore stocks when no period activity is specified.

Total population and a bank balance represent quantities existing at a particular point in time, so both are stock variables when stated as totals or balances. The other options describe activities occurring over days, weeks, months, or years, such as output, sales, saving, expenditure, and tax collection; these are flows.

The shop's inventory valued at ten lakh rupees on 1 April is a stock variable because it is measured at a particular date. It shows the quantity of goods held by the shop at that instant, rather than the goods purchased or sold during a period. Purchases and sales over a month or year would be flow variables. Hence, option B is correct.

Sales during April are measured over the interval of one month, so they are a flow variable. Sales record an economic activity taking place throughout a period. By contrast, the shop's inventory on a particular date would be a stock because it records the goods available at one point in time.

Total wealth is an accumulated value measured at a point in time, so it is a stock. Monthly rent is an amount paid over a month, so it is a flow. Option C reverses the order, while options A and D place the flow first; therefore, only option B satisfies the required stock-then-flow sequence.

Monthly income is measured over the duration of a month, so it is a flow. A cash balance is the amount held at a particular point in time, so it is a stock. The other options either begin with a stock or place a period-based variable second, and therefore do not show the required flow-then-stock order.

Monthly income is earned throughout a month, so it is a flow variable. The deposit balance at the end of the month is measured on one specified date, so it is a stock variable. Although deposits may result from earlier flows of saving, the balance itself is a stock at the date of measurement.

Wealth, population, and money supply are stock variables because each represents a quantity measured at a particular point of time. Wealth is the accumulated value of assets, population is counted on a date, and money supply is the total money available at a given time. Saving, income, output, sales, investment, taxes, and imports are generally measured over a period and are therefore flows.

Money supply is a stock because it measures the total quantity of money existing in the economy at a particular point of time. In contrast, the flow of money refers to payments or transactions taking place during a specified period, such as a month or year. Thus, option B correctly separates a balance from movement.

A stock is measured at a particular point in time, whereas a flow is measured over a period of time. The cash present in the student’s pocket today is a balance at one date, so it is a stock. Cash spent during the week is recorded over seven days, so it is expenditure during a period and therefore a flow. The time reference determines the classification.

National wealth is a stock, not a flow, because it represents the accumulated value of assets owned by a nation at a particular point of time. National income is earned and measured over a period, so it is a flow. Therefore, the statement that national wealth is a flow is incorrect.

Capital stock represents the value of capital assets available at a particular point in time, so it is a stock. Investment represents the addition to the capital stock made during a specified period, here one year, so it is a flow. The figures of ten crore and two crore do not change this conceptual classification; the relevant distinction is the time dimension.

Saving made during a year is measured over the entire year, so it is a flow. Accumulated saving at the end of the year is the balance built up by past saving and measured on a particular date, so it is a stock. In general, a flow can change a stock: regular saving adds to accumulated wealth or financial balances over time.

Income is a flow because it is earned or received over a period such as a month or year. Wealth is a stock because it represents the accumulated value of assets and liabilities at a particular point of time. Thus, income adds to wealth over time, but the two concepts are not identical.

The opening inventory balance is the quantity of goods existing at the beginning of a specified date, so it is a stock. The change in inventory records an increase or decrease occurring throughout the year, so it is a flow. A balance is a stock, while its change over time is a flow.

A flow is measured over a period of time. The increase in population during a year records the change that occurs throughout that year, so it is a flow. By contrast, the total population on a particular date is a stock because it is measured at one point in time. Thus, population growth during the year is correctly classified as a flow.

A stock is measured at a specific point in time. The census records the country’s total population on a particular date, so that population figure is a stock. It does not measure births, deaths, or population change over an interval. Those events or changes would be flows, whereas the total number existing on the census date is the stock.

The number of births in a year is counted over an interval from the beginning to the end of the year, so it is a flow. Total population on a specified date is measured at one point in time, so it is a stock. The same population can rise through flows such as births and immigration and fall through flows such as deaths and emigration.

Production is measured as the quantity produced over a period such as a day, month, or year, so it is a flow. Capital stock is the value or quantity of productive assets available at a particular point of time, so it is a stock. Capital may generate production flows over time.

A house is an asset whose value is measured at a particular point of time, so it is a stock. Annual rent represents the income or service value generated by the house over a year, so it is a flow. The asset and the return earned from using it have different time dimensions.

Depreciation caused by wear and tear is measured over a period, such as a year, because it records the reduction in the value of machines during that interval. Therefore, depreciation is a flow. The remaining value of the machines on a particular date would be a capital stock. A change in a stock over time is normally treated as a flow.

Written-down value at the end of the year is the book value of machines existing on a specified date. Since it is measured at that point of time, it is a stock variable. Annual sales and monthly income are flows because they are measured over periods, not as balances on one date.

The phrase “per day” indicates a rate or quantity measured over a time period. Such a variable is generally treated as a flow, because it records an amount occurring during each day. A stock, in contrast, is measured at a point of time, such as cash held on a particular date.