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.
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.
StockFlowThe variables that areThe variables that are measuredmeasured at a particular pointover an interval of time.of time. For example, bankFor example, interest earnedbalance as on 1st Oct 2010 ison bank deposits for 1 year, i.e.,Rs. 5000.from 1 Oct-2009 to 30 Sep 2010.It has no time dimensions.It has time dimensions, like 1 year, 6months, 10 days, etc.Examples: Capital, bank deposits,Examples: Capital formation, interestlevel of water in a tank.on capital, water flowing in a stream.
Having understood the difference between stock and flow, we can state that net investment is a flow variable as it gives the difference in the investment level over a period of time. On the other hand, capital is a stock variable, as it can be measured at any point of time.
Comparison of net investment and capital with a water tank:
An example of stock can be the amount or level of water in a tank. At any point in 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 the 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.
StockFlowThe variables that areThe variables that are measuredmeasured at a particular pointover an interval of time.of time. For example, bankFor example, interest earnedbalance as on 1st Oct 2010 ison bank deposits for 1 year, i.e.,Rs. 5000.from 1 Oct-2009 to 30 Sep 2010.It has no time dimensions.It has time dimensions, like 1 year, 6months, 10 days, etc.Examples: Capital, bank deposits,Examples: Capital formation, interestlevel of water in a tank.on capital, water flowing in a stream.
Having understood the difference between stock and flow, we can state that net investment is a flow variable as it gives the difference in the investment level over a period of time. On the other hand, capital is a stock variable, as it can be measured at any point of time.
Comparison of net investment and capital with a water tank:
An example of stock can be the amount or level of water in a tank. At any point in 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 the 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.
