Stocks and flows

Total assets in a balance sheet represent the value of resources owned by the company on a particular date. They are therefore a stock. Sales of the year are accumulated transactions taking place throughout a period, so sales are a flow. The accounting statement and the time period provide the basis for the distinction. Thus, option B is correct.

Public debt at the end of the year is the accumulated outstanding liability existing at a specific date, so it is a stock. The fiscal deficit measures the excess of government expenditure over receipts during a financial year and is therefore a flow. A year's deficit may add to the debt stock, but the two concepts are not identical. Option B is correct.

Capital stock itself is measured at a point in time and is therefore a stock. However, an increase in capital stock means the amount of change occurring between two points in time. Such investment or addition is measured over a period and is therefore a flow. The question asks about the increase, not the existing capital stock. Hence, option B is correct.

Accumulated depreciation is the total reduction in the value of an asset accumulated up to a particular date, so it is a stock. Depreciation expense for the current year records the loss of value during one accounting period, so it is a flow. The distinction is based on cumulative position versus annual change. Therefore, option B is correct.

Machines are part of the economy's capital stock. Their use generates production or productive services during a period, and that output is a flow. The other options either repeat a stock-like quantity or do not clearly describe a period activity generated by a stock. Thus, annual output produced by machines is the correct example of a flow arising from a stock.

Annual saving is measured over a period, so it is a flow. When savings are accumulated over time, they can build a stock of wealth or financial assets. This illustrates the relationship in which repeated flows add to an existing stock. The other options merely repeat quantities and do not show accumulation. Therefore, option A is correct.

Opening inventory is the quantity of goods held at the beginning of a period, which is a position measured at a point in time and therefore a stock. Change in inventory records the increase or decrease occurring during the year, so it is a flow. This is why option C correctly distinguishes the opening balance from the period change.

Foreign exchange reserves represent the amount of foreign currency and related assets held at a particular point in time, so they are a stock. Export earnings are receipts generated from exports over the course of a year, so they are a flow. A reserve balance may change because of flows, but it remains a stock measure. Hence, option B is correct.

New loans taken during the year are transactions occurring over a specified period, so they are a flow. Total outstanding loans at year end are the accumulated liability existing at a particular date, so they are a stock. New borrowing can increase the outstanding stock, but the annual borrowing and the accumulated balance must be kept conceptually separate. Option B is correct.

Outstanding salary payable is the unpaid amount existing on a particular date, so it is a stock or liability balance. Salary paid during the month represents payments made over a period, so it is a flow. The fact that both are expressed in money does not make them the same type. Their time reference determines the classification. Therefore, option B is correct.

The number of unemployed persons on a particular date represents the existing pool or position at that moment, so it is a stock. People losing jobs during a month are new events occurring over a period, so they are a flow. The flow of job losses can add to the unemployment stock, but the two measures are conceptually different. Hence, option A is correct.

National income is the income earned by the factors of production during a specified period, such as a year, so it is a flow. Capital stock and money supply are balances measured at a point in time, while annual investment is measured over a period. Therefore, the statement treating national income as a stock is incorrect, making option D the answer.

Annual tax collection is the amount of tax received during a financial year, so it is measured over a period and is a flow. Tax arrears are the accumulated unpaid tax liability outstanding at a particular date, so they are a stock. Arrears may change because of payments and new liabilities, but the outstanding balance remains a stock. Option B is correct.

Gross investment and net investment are additions to capital measured over a period, so they are flows. Depreciation is the reduction in capital value during a period and is also a flow. The other options list balances or accumulated quantities such as capital stock, fixed assets, wealth, and reserves, which are stocks. Therefore, option A contains only flows.

Capital stock, the total value of machines, and fixed assets describe accumulated resources existing at a particular point in time. They are therefore stocks. Annual investment, depreciation, capital formation, output, sales, income, saving, and exports are generally measured over periods and are flows. Consequently, option B is the only option containing only capital-related stocks.

An income statement records revenue, expenses, and profit earned during an accounting period, so its figures are generally flows. A balance sheet reports assets, liabilities, and equity at a particular date, so its figures are generally stocks. The distinction is based on period measurement versus position at a point in time.

Household wealth is the accumulated value of assets minus liabilities measured today, at one point in time; therefore it is a stock. Income received or earned during the current year is measured over a period; therefore it is a flow. Income may change wealth, but the two concepts are not identical.

Total population measured at a particular date is a stock. The increase in population during a year is a flow because it records a change occurring over a period. The other pairs contain quantities measured over periods, but they do not explicitly present a stock together with its related change.

A flow measures an economic activity over a specified period. New foreign investment received during the year records the amount entering during that year, so it is a flow. Total capital, assets at year-end, and currency available today are measured at particular dates and are stocks.

Depreciation is the loss in value of fixed capital caused by wear, ageing, or obsolescence during a period. Because it is measured over time, depreciation is a flow. It reduces the existing capital stock, which is measured at a point in time. The other options do not describe a time-period change that decreases a stock.

Net investment is expenditure on new capital after allowing for depreciation, measured over a period; therefore it is a flow. It adds to the economy's existing capital stock and raises productive capacity. The other choices do not describe a genuine period flow adding to a stock.

Household wealth is the accumulated value of owned assets less liabilities at a point in time, so it is a stock. Monthly consumption records spending over a month, so it is a flow. Consumption can reduce or redistribute wealth, but its monthly amount remains a period measure.

Government debt is the accumulated outstanding liability of the government at a particular date, so it is a stock. Annual tax revenue is the amount collected during one year, so it is a flow. Debt changes as borrowing and repayment occur, while tax revenue records transactions over a period. Thus, option A correctly applies the stock-flow distinction.

Current-account transactions such as exports, imports, and income payments are recorded over an accounting period, so they are flows. Foreign assets represent accumulated ownership or value held at a point in time, so they are stocks. Transactions can change asset stocks, but the concepts are not interchangeable.

Profit for the year is generated through business activity over an accounting period, so it is a flow. Accumulated retained earnings represent profits kept and built up up to a particular date, so they are a stock. A current-period addition can therefore increase the accumulated stock of retained earnings.