Variables

According to Oxford Dictionary of Economics, "A quantity which is liable to change is known as a variable."

In simple words, a variable is a quantity or magnitude that can change over time or from one situation to another. According to the Oxford Dictionary of Economics, "a quantity which is liable to change is known as a variable" (paraphrased).​

Examples of economic variables include:

• Price of a good
• Rate of interest
• Income level of an individual or of the country
• Quantity of goods produced or consumed

Each of these can take different possible values that may increase or decrease over time.

Economists classify variables in several useful ways. Two important classifications are:

1) Independent and Dependent Variables

An independent variable is a variable that is deliberately changed or allowed to change, to see its effect on another variable. A dependent variable is the outcome that changes because of changes in the independent variable.
For example, in a simple demand relationship:

• Price of a commodity (P) may be treated as an independent variable.
• Quantity demanded (Q) is then the dependent variable that changes when price changes.

In macroeconomics, the tax rate can be taken as an independent policy variable, while consumption expenditure may be treated as a dependent variable that responds to changes in taxes.​

2) Exogenous and Endogenous Variables

An exogenous variable ("exo" = outside) is a variable whose value is determined outside a particular economic model and is taken as given within that model. An endogenous variable ("endo" = inside) is one whose value is determined within the model by the interaction of economic forces described in the model.​

• Exogenous variable: Set from outside the model; the model does not explain how it is determined.
• Endogenous variable: Determined within the model; the model shows how its value results from the behaviour of economic agents.

Example (money market):
In a simple model of the money market:

• Money supply (M) is usually treated as an exogenous variable, fixed by the central bank.
• Rate of interest (r) and demand for money (Md) are endogenous variables, determined by the interaction of money demand and money supply within the model.

A stock variable is a quantity that is measured at a particular point of time. It shows "how much" of something exists on a specific date or at a specific moment.

Examples:

• Wealth of a person on 31 March 2026
• Capital stock of machines installed in a factory on 1 April 2026
• Population of a country on Census date
• Bank balance in your account at the end of the month
• Inventory of goods lying in a shop on a particular day

All these are measured "as on" a particular date, like a still photograph of the situation.​

A flow variable is a quantity that is measured over a period of time (per hour, per day, per month, per year, etc.). It shows "how much" is added, produced, or used during a specified interval of time.

Examples:

• Monthly income of an individual
• Monthly expenditure on household goods
• Annual saving of a family
• Gross Domestic Product (GDP) of a country during the year 2025–26
• Exports and imports during a financial year
• Government revenue and government expenditure during a budget year​

These are like a video recording of what happens during a period.

• Camera analogy: A still camera captures a picture at one instant – similar to a stock variable such as wealth or capital at a particular date. A video camera records what happens over time – similar to a flow variable such as income or saving during a year.​
• Water‑tank analogy: The amount of water in a tank at a moment is a stock. The rate at which water flows into or out of the tank per minute is a flow.​

• A variable is any economic magnitude that can change, such as price, income, or output.​
• An independent variable is changed to study its effect; a dependent variable is the outcome affected by the independent variable.
• Exogenous variables are determined outside a model and treated as given, while endogenous variables are determined within the model.​
• A stock variable is measured at a specific point of time (e.g., wealth on 31 March), whereas a flow variable is measured over a period of time (e.g., income during 2025–26).
• Stock and flow are inter‑related: flows often represent changes in stocks over a period.