Question 3: Distinguish between stock and flow. Between net investment and capital which is a stock and which is a flow? Compare net investment and capital with flow of water into a tank.
Answer:
| Stock |
Flow |
| The variables that are measured at a particular point of time. For example, bank balance as on 1st Oct 2010 is Rs. 5000. |
The variables that are measured over an interval of time. For example, interest earned on bank deposits for 1 year, i.e. from 1 Oct-2009 to 30 Sep 2010. |
| It has no time dimensions. |
It has time dimensions, like 1 year, 6 months, 10 days, etc. |
| Examples: capital, bank deposits, water in a tank. |
Examples: capital formation, interest on capital, water flowing in a stream. |
An example of stock can be the amount or level of water in a tank. At any point of time the amount or the level of water in a tank can be measured. Similarly, the capital is also a stock variable, as the capital can also be measured at any point of time.
Now, if water is flowing out of a tank through a tap, then the level of water will change over time. The difference in water level over an interval of time is an example of a flow variable. Similarly, net investment gives the difference in the investment level over a period of time.
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