Concept of Stock and Flow Variables

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Meaning of Stock Variables

A stock can be defined as an amount determined at a particular point in time. On August 1, 2020, there may be Rs. 20,000 in your bank account. On August 10, 2020, there may be Rs. 25,000 in your bank account. All such values are stock values, as these are measured at a specific point in time. The stock variable thus refers to the quantity or value of certain economic variables given at a point in time. Capital and quantity of money are some of the major examples of stock variables.

Meaning of Flow Variables

A flow can be defined as a quantity calculated over a specified period. Suppose you are getting Rs. 5000 per month as a pocket budget, you may be devoting Rs. 50 every day in the canteen of your college, the bank may be ensuring 8 percent annual interest on deposits. All these values/quantities are ‘flows ‘ as these are measured per unit of the time (an hour, a day, a month, a year, etc.). The flow variable thus refers to the variables that are expressed per unit of time i.e. per hour, per week, per month, or year. Income, expenditure, production, consumption, and interest are the major examples of flow variables.

Examples/Concept of Stock and Flow Variables

Some of the major stock and flow variables in economics are pointed below.

Stock VariableFlow Variable
WealthIncome
Labour ForceExpenditure of Money
CapitalCapital Formation
Quantity of Money Supply in the EconomyChange in Supply of Money in the Economy
Bank DepositInterest on Capital
Water in the Overhead TankLeakage of Water from the Overhead Tank
Distance between Munich to FrankfurtSpeed of a Car Going from Frankfurt from Munich
Rice Stored in StoreroomSales of Rice
The population of a CountryNumber of Births

Difference between Stock and Flow Variable

Difference between Stock and Flow Variable

Stock VariableFlow Variable
Stock variable signifies the value of a variable about point of timeFlow variable denotes the value of any variable about the period
It has not any time dimensional consideration. It only denotes the point of time.  It has a time aspect/dimension and thus we can express it as per hour, per day, per month
The volume of stock directly affects flow. The higher the stock the higher will be flow and vice versa. For example, higher stock of capital helps to flow goods and services in high volume.The volume of flow has also impacted flow. For example, the higher flow of income helps to create a higher stock of wealth.

To understand the demarcation between flow and stock let us see some examples.

  • The books accumulated in the central library for a point is stock variable, but the quantity of economics books supplied by King Publication per year is flow variable.
  • A fixed deposit with the Everest Bank is a stock variable and interest earned on the deposit is a flow variable.  

Economics applies various economic variables while analyzing economic problems and issues. These economic variables are in general grouped as stock and flow variables./Concept of stock and flow variables.

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