Question

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 1

 

	Stock		Flow
1.	The variables that are measured at a particular point of time. For example, bank balance as on 1st Oct 2010 is Rs.5000.	1.	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.
2.	It has no time dimensions.	2.	It has time dimensions, like 1 year, 6 months, 10 days, etc.
3.	Examples: Capital, bank deposits, water in a tank.	3.	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.