The distinction between a stock and a flow variable is elementary, and dates back centuries in accounting practice (distinction between an asset and income, for instance). If it then has 27 machines on January 1, 2012, the flow of net investment during 20 averaged 3 1 2 History For example, if a country's stock of physical capital on Januis 20 machines and on Januis 23 machines, then the flow of net investment during 2010 was 3 machines per year. In discrete time, the change in a stock variable from one point in time to another point in time one time unit later (the first difference of the stock) is equal to the corresponding flow variable per unit of time. For example, the velocity of money is defined as nominal GDP / nominal money supply it has units of (dollars / year) / dollars = 1/year. The ratio of a flow to a stock has units 1/time. For example, the debt to GDP ratio has units of years (as GDP is measured in, for example, dollars per year whereas debt is measured in dollars), which yields the interpretation of the debt to GDP ratio as "number of years to pay off all debt, assuming all GDP devoted to debt repayment". The ratio of a stock over a flow has units of (units)/(units/time) = time. This is a point of some confusion for some economics students, as some confuse taking ratios (valid) with comparing (invalid). ![]() However, one may meaningfully take ratios of stocks and flows, or multiply or divide them. Stocks and flows have different units and are thus not commensurable – they cannot be meaningfully compared, equated, added, or subtracted. These differ in their units of measurement.Ĭapital is a stock concept which yields a periodic income which is a flow concept.įurther information: Dimensional analysis § Commensurability Flow magnitudes include income, spending, saving, debt repayment, fixed investment, inventory investment, and labor utilization. capital).Ī person or country might have stocks of money, financial assets, liabilities, wealth, real means of production, capital, inventories, and human capital (or labor power). profit or income), while others may be represented both as a stock or as a flow (e.g. Some accounting entries are normally always represented as a flow (e.g. ![]() ![]() If the flow value of an economic activity is divided by the average stock value during an accounting period, we obtain a measure of the number of turnovers (or rotations) of a stock in that accounting period. Thus, a stock refers to the value of an asset at a balance date (or point in time), while a flow refers to the total value of transactions (sales or purchases, incomes or expenditures) during an accounting period. The diagram provides an intuitive illustration of how the stock of capital currently available is increased by the flow of new investment and depleted by the flow of depreciation. nominal capital stock is the total value, in dollars, of equipment, buildings, and other real productive assets in the U.S. Therefore, it is a flow variable, and has units of dollars/year. nominal gross domestic product refers to a total number of dollars spent over a time period, such as a year. Flow is roughly analogous to rate or speed in this sense.įor example, U.S. Therefore, a flow would be measured per unit of time (say a year). A flow variable is measured over an interval of time. A stock is measured at one specific time, and represents a quantity existing at that point in time (say, December 31, 2004), which may have accumulated in the past. These differ in their units of measurement. ![]() flow Dynamic stock and flow diagramĮconomics, business, accounting, and related fields often distinguish between quantities that are stocks and those that are flows.
0 Comments
Leave a Reply. |
Details
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |