Stocks and flows

A bank’s deposit liability at year end is the outstanding amount owed to depositors at one particular date, so it is a stock. New deposits received during the year are transactions occurring throughout a period, so they are a flow. Hence option A is correct. The new deposits may change the year-end liability stock, but the two measures remain conceptually different.

National income is the aggregate factor income earned by the residents of a country during a specified period, usually one year. Because it is measured over a period, it is a flow rather than a stock. A stock, such as national wealth, is measured at a particular point in time. Hence, option B is correct.

Depreciation measures the loss in the value of capital goods over a specified period, commonly a year. Since it records a change occurring during time, depreciation is a flow variable. The capital stock itself is measured at a point in time and is a stock. Thus, option B is correct.

Flows represent additions to or withdrawals from a stock over time. For example, deposits increase a bank balance and withdrawals reduce it; investment increases capital stock while depreciation reduces it. Therefore, flows can make a stock rise or fall, making option C correct.

Population at the beginning and end of the year are both stock measures because each is recorded at a point in time. Their difference shows the change that occurred between those two dates, that is, over the year. A change measured over a period is flow-related, even though it is calculated from two stock values. Therefore, option C is correct.

A stock is measured at a point in time, such as total bank deposits on a specified date. Option B refers to the increase in deposits per month, which measures a change occurring throughout an interval. The time-rate expression “per month” converts the idea into a flow. The other options describe point-in-time holdings, so B is correct.

GDP measures the value of final goods and services produced within an economy during a specified period, usually a quarter or year, so it is a flow. Capital stock represents the quantity or value of capital assets available at a particular point in time, so it is a stock. Therefore, option C is correct.

Money supply denotes the quantity of money existing in the economy at a given time and is treated as a stock. Velocity is calculated by relating transactions or nominal income over a period to the money stock, so it is a period-related ratio. Thus, option A is correct.

Saving measured during a year is the part of income not consumed during that period, so it is a flow. Accumulated saving or wealth held at a particular date is a stock because it represents a balance built up over time. Thus, saving is not always a stock; its classification depends on the period or point of measurement. Option A is correct.

Foreign-exchange reserves are a stock because they are measured at a particular date. However, flows during a period, such as export earnings, foreign investment, borrowing, or capital inflows, can increase that stock, while payments or outflows can reduce it. Thus, option B is correct.

Wealth is a stock because it represents assets owned at a particular point in time. Income is a flow because it is earned over a period. A bank balance is again a stock because it is the amount held at a specific date or moment. Thus, the sequence stock-flow-stock appears in “wealth, income, bank balance,” making option A correct.

Income is measured over a period, so it is a flow. Capital is the stock of productive assets available at a point in time. Investment is expenditure on capital goods undertaken during a period, so it is a flow. Consequently, option B follows the sequence flow-stock-flow.

Closing inventory is the quantity of goods held at a particular date, such as the end of an accounting year, and is therefore a stock. The change in inventory records additions or reductions over a period and is a flow. Consequently, option A is correct.

Capital stock is the value or quantity of productive assets available at a particular point in time, so it is a stock. Depreciation measures the loss of value or wear and tear occurring during a period, usually a year, so it is a flow. Although depreciation changes the capital stock, it is not itself a stock balance. Thus, option B is correct.

Financial position is reported on a particular date through items such as assets, liabilities, and cash balances, so it is stock-oriented. Financial performance, including income and expenses, is measured over an accounting period, so it is flow-oriented. Hence, option C is correct.

Saving is measured over a period and is therefore a flow. When it is channelled into investment in machinery, buildings, or other productive assets, it adds to the economy’s capital stock. After allowing for depreciation, positive investment can raise the stock. Thus, option A is correct.

Production capacity describes the amount of productive ability available at a particular point in time, such as on a specified date. Therefore, it is a stock. Production, when stated for one year, measures activity over a period and is therefore a flow. The time reference determines the classification.

A bank's total deposit liability on a particular date is an outstanding balance existing at that point in time, so it is a stock. New deposits made during a month are additions occurring throughout a period, so they are a flow. The distinction is based on the time reference.

Opening capital is measured at the beginning of a period and is therefore a stock. Investment is expenditure on additions to capital during the period, so it is a flow. The resulting capital available at the end of the period is another stock. Thus option A gives the required sequence.

Capital reported in a balance sheet is a value measured on a particular date, so it is a stock. Profit is earned through business operations over an accounting year, so it is a flow. A balance-sheet position and an income earned during a period must therefore be classified differently.

Investment represents additions to capital made during a period, while depreciation represents the loss of capital value occurring during that period. Since both are measured as changes over time and alter the level of capital stock, both investment and depreciation are flow variables.

Opening inventory is the quantity of goods available at the beginning of the year, a position measured at a point in time; therefore it is a stock. The increase in inventory occurs throughout the year and represents a change in that stock, so it is a flow. A change in a stock is measured over a period.

National or household wealth is the value of assets owned at a particular point in time, so it is a stock. Rent received during one year is income generated over a period, so it is a flow. The stock of wealth can generate several flows of income, including rent, interest, or profits.

The machine's value at the beginning of the year is measured at a specific date, so it is a stock of fixed capital. Annual depreciation measures the loss in value caused by use or ageing over the year, so it is a flow. The asset level and the period change in that level must be distinguished.

Lifetime accumulated saving is the balance built up and held at a particular point in time, so it is a stock. Saving during the current year is the part of income not consumed during that year and is measured over a period, so it is a flow. Current saving can add to the accumulated stock.