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.
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Answer:-
Difference between Stock and Flow
| Basis | Stock | Flow |
| Meaning | Stock variable refers to that variable, which is measured at a particular point of time. | Flow variable refers to that variable, which is measured over a period of time. |
| Time Dimension | It does not have a time dimension. | It has a time dimension as its magnitude can be measured over a period of time. |
| Nature of Concept | It is a static concept | It is a dynamic concept |
| Examples | 1. Population of India as on 31.03.22. 2. Total number of Maruti cars in Delhi 3. Money supply (money in circulation). 4. National Wealth 5. Quantity of wheat stored |
1. Number of births during 2022.
2. Maruti cars manufactured during January, 2023. 3. Expenditure or transactions in money. 4. National Income 5. Quantity of wheat produced.
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Net Investment is a flow as it is just the addition to the present stock of capital during the year. Thus it is measured over a period of time.
Capital is a stock as it is measured at a point of time.
Lets understand it with the flow of water in the water tank.
Suppose a water tank is being filled with water coming from a tap.
The amount of water which is flowing into the tank from the tap per minute is the flow. The quantity of water that existed at a particular point of time is considered as stock.
The above example can be compared with net investment and capital.
The net investment is compared to the flow of water into a tank. Here, the net investment is just the addition to the present stock of capital during the year.
For Example:- Investment ₹ 3,00,000 into the business during 2023 – 24.
Here, the capital is compared to the water that existed at a particular point of time. The capital is the stock of capital goods existed at a particular pointof time.
For example:- ₹ 2,00,000 Capital as at 31st March
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