Stocks and flows

Saving provides financial resources that can be channelled into investment in machines, buildings, infrastructure, and inventories. Investment expands productive capacity and can raise output, employment, and income. Their relationship is therefore central to capital formation, growth, and macroeconomic equilibrium, although saving does not automatically become investment in every situation.

A flow is measured over an interval of time, such as income earned during a month or expenditure made during a year. In the household-firm circular flow, production, income and expenditure continuously occur during a period. A stock, in contrast, is measured at a particular point, such as wealth on 31 March.

Gross measures include the value of capital used up through normal wear and tear during production. To obtain a net measure, depreciation, also called consumption of fixed capital, is deducted from the gross measure. For example, net investment equals gross investment minus depreciation, and NDP equals GDP minus depreciation. Therefore, depreciation is the relevant adjustment.

Capital means the stock of productive assets, such as machines, available at a particular point in time. Investment means the addition to that capital stock during a period. Since capital is measured as an existing balance and investment as an addition over time, capital is a stock and investment is a flow. Option A states this distinction correctly.

The total amount deposited during a year records transactions occurring throughout a specified period. A variable measured over a period is a flow. In contrast, today's balance, an account balance on a date, or the year-end deposit balance is measured at a point in time and is a stock. Therefore, option B is correct.

A company's assets stated on 31 March show the value of resources owned at one particular date. A quantity measured at a point in time is a stock variable. Income and expenditure are normally measured over an accounting period and are flows. Therefore, the assets reported on 31 March are a stock, so option D is correct.

Annual sales measure the total value or quantity of goods and services sold during one complete year. Since the measurement covers a specified period, sales are a flow variable. A stock would describe an amount existing at one date, such as inventory or assets. Thus, option A gives the correct reason.

National income is the income earned by the economy during a specified period, such as a year, so it is a flow. National wealth is the accumulated value of assets owned by the nation at a particular point in time, so it is a stock. Therefore, option B correctly states the difference between the two aggregates.

A flow variable is measured over a specified interval of time. Examples include income earned during a year, consumption expenditure during a month, and production during a quarter. Option A and option B describe point-in-time or accumulated stock ideas, while option D is unrelated to the definition. Hence, C is correct.

A stock variable records the quantity existing at a particular point in time, such as wealth on 31 March, inventory on a date, or population on 1 January. A flow is measured over an interval, not at one instant. Income and production can be flows, but a stock is not restricted to either. Therefore, option A is correct.

The purchase of machines during the year is measured over the period of one year, so it is a flow variable. It is investment expenditure and may add to the existing capital stock. The machines owned at the end of the year would be a stock, whereas the amount purchased during the year is a flow. Hence, option B is correct.

The total number of machines at the end of the year is counted at a specific point in time. It represents the existing capital equipment balance, not the additions made during the year. A quantity measured at a date is a stock, while investment during the year is a flow. Therefore, option C is correct.

Total public debt on a specified date means the outstanding amount owed by the government at that point in time. A point-in-time measure is a stock variable. New borrowing during a financial year would be a flow, but the accumulated debt balance on a date is a stock. Therefore, the correct answer is option D.

New government borrowing taken during a financial year is measured over a specified period. It is therefore a flow variable, even though borrowing creates a liability. The total outstanding public debt at the end of that year would be a stock. Since the question asks about the type of variable, option A, Flow, is correct.

Change in inventory measures how much the quantity or value of goods in stock has increased or decreased over a specified period. Because it records a change between two points in time, it is a flow. The inventory balance on a particular date is a stock, while its change can form part of investment. Thus, option A is correct.

Goods lying in a warehouse on 30 June represent the quantity available at one specified date. Such a point-in-time measure is a stock variable. Production rate and annual sales are measured over periods and are flows. Therefore, the warehouse goods on 30 June are correctly classified as stock, making option B the answer.

Birth rate is calculated with reference to births occurring during a period, commonly a year, so it is associated with a flow of births. Total population is the number of people existing at a particular date and is therefore a stock. The two measures have different time references, making option C correct.

The number of children born in one month counts births occurring throughout a specified period. A quantity measured during a period is a flow variable. Population on a particular date would be a stock, but births during a month measure an event over time. Therefore, option D, Flow, is the correct answer.

The population of a city on 1 January is measured at one definite point in time. A quantity existing at a particular date is a stock variable. Population growth or the number of births during a year would be flows, because those are measured over periods. Hence, the population on 1 January is a stock and option A is correct.

Imports made during one year measure the total value of goods and services purchased from abroad over that specified period. A period-based quantity is a flow variable. Foreign exchange reserves or a capital balance on a particular date would be stocks. Therefore, imports during one year are flows, and option B is correct.

Foreign exchange reserves held by the central bank on a specified date represent the accumulated foreign-currency assets available at that point in time. Because the amount is measured on a date, it is a stock variable. Exports are measured over a period and are flows. Thus, option C, Stock, is correct.

The phrase 'per week' refers to a quantity measured or expressed over a weekly time interval. Income per week, sales per week, and production per week are all flows because they occur during a period. A stock would be measured on a particular date, such as cash held on Monday. Therefore, option D is correct.

A balance sheet reports assets, liabilities, and net worth at a particular date, so it presents stock positions. A profit and loss account records revenue and expenses during an accounting period, so it presents flows. This difference is an accounting application of the stock-flow distinction. Hence, option A is correct.

Monthly consumption expenditure measures the amount spent by a household during the one-month period. Since it is recorded over an interval of time, it is a flow variable. Wealth or a bank balance measured on a particular date would be a stock. Therefore, monthly consumption expenditure is a flow, and option B is correct.

Cash held by a household today is the amount available at a specific point in time. Such a balance is a stock variable. Income and expenditure describe amounts earned or spent over a period, such as a month or year, and are flows. Therefore, today's cash holding is a stock, so option C is correct.