Stocks and flows

Correct answer: A. Stock and flow

Explanation: 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.

Correct answer: B. Because national income is total income earned during a specified period

Explanation: 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.

Correct answer: B. Flow

Explanation: 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.

Correct answer: C. Stock can rise or fall due to flows

Explanation: 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.

Correct answer: C. Flow-related change

Explanation: 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.

Correct answer: B. Increase in bank deposits per month

Explanation: 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.

Correct answer: C. GDP is flow and capital stock is stock

Explanation: 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.

Correct answer: A. Money supply is stock at a point and velocity is a period-related ratio

Explanation: 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.

Correct answer: A. Annual saving is a flow and accumulated saving is a stock

Explanation: 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.

Correct answer: B. Period-related flows such as export earnings and capital inflows

Explanation: 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.

Correct answer: A. Wealth, income, bank balance

Explanation: 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.

Correct answer: B. Income, capital, investment

Explanation: 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.

Correct answer: A. Closing inventory is stock and change in inventory is flow

Explanation: 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.

Correct answer: B. Capital stock is stock and depreciation is flow

Explanation: 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.

Correct answer: C. Financial position is stock and financial performance is flow

Explanation: 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.

Correct answer: A. Saving flow can become investment and increase capital stock

Explanation: 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.

Correct answer: B. Capacity is a stock and production is a flow

Explanation: 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.

Correct answer: C. Total deposits are a stock and new deposits are a flow

Explanation: 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.

Correct answer: A. Opening capital stock, investment during the period, closing capital stock

Explanation: 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.

Correct answer: B. Capital is a stock and profit is a flow

Explanation: 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.

Correct answer: C. Both are flows

Explanation: 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.

Correct answer: B. Opening inventory is a stock and the increase is a flow

Explanation: 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.

Correct answer: B. Wealth is a stock and rent is a flow

Explanation: 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.

Correct answer: A. Machine value is a stock and depreciation is a flow

Explanation: 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.

Correct answer: B. Accumulated saving is a stock and current saving is a flow

Explanation: 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.