Chapter 2 National Income Accounting - Basic Concepts

Economics Class 12
Macroeconomics

Stock is a variable which is Measured at a Particular Point of Time

Flow is a variable which is Measured over a period of Point

Example 1

Suppose I have Rs 50000 in my bank account as on 1 Jan

I spent Rs 10,000 during the month of January

Now I am left with Rs 40,000 as on 31 jan

#### Note

In this case,

Bank Balance is Stock

(It is measured at particular point of Time (as on 1 Jan or 31 Jan)

Amount spent is Flow

It is measured over a period of time (During Jan)

Example 2

Suppose water is flowing into a tank from a tap

There is 20 litres water in tank as on 9 am

There is 30 litres in tank as on 9.01 AM

It means water is flowing from tap @rate of 10 litres per minute

#### What is Stock and Flow?

Amt of Water flowing into tank per minute is example of flow

Amt of Water in Tank at a particular time is an example of Stock.

Amt of Water flowing from tap per minute is example of flow

#### Accounting Concept of Stock and Flow

Balance Sheet is prepared as on Particular Date

Example - Balance sheet as on 31 March 2021

Hence, all Balance sheet figures are example of stock like fixed assets, cash, bank balance, stock

Profit and loss is prepared for a particular Period

Example-Profit and Loss for Period 2020-21

Hence, all profit and loss figures are example of flow like Sales, Purchase etc #### Which has Time Dimension-Stock or Flow?

Time Dimension means

Measuring something from one point of time to another

Stock is measured at a particular point of time

(There is only one point OF TIME)

Flow is measured over a period of time (from one point to another)

(There are two points of time - Starting and ending)

Hence Flow has Time Dimension (And not STOCK)

#### Which is Static and Which is Dynamic Concept?

Static means

Something which is fixed

Dynamic means

Something which is continuously moving

Lets take an example of Water flowing in Tank

We know that

Amt of Water flowing into tank per minute is example of flow

Amt of Water in Tank is an example of Stock

Amount of water in a tank at a particular point of time is static ( fixed)

Hence, we can say Stock is Static Concept

Amount of water flowing in a tank is dynamic (moving).

Hence we can say Flow is Dynamic Concept.

#### Difference between Stock and Flow

 Stock Flow It is a variable which is measured over a particular point of time. It is a variable which is measured over a period of time. It does not have time dimension It has time dimension It is Static Concept It is dynamic concept Example Example National Wealth as on 31 mar 2021 National Income for period 2020-21 Covid Cases as on 1 Apr 2020 Covid Cases Increased during April 2020 Total Money in Circulation as on 31 Mar 2021 New Money printed during 2020-21

## NCERT Questions

#### Question 3

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.

## Other Books

#### Question 1

____ variable refers to the variable, which is measured at a particular point of time.

#### Question 2

___ variable are time dimensional.

#### Question 3

Real Flow is also known as ____.

#### State true or false with reasons.

National Income of a country is a Stock Concept.

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### Transcript

Stock is a variable which is Measured at a Particular Point of Time Flow is a variable which is Measured over a period of Point What is Stock and Flow? Amt of Water flowing into tank per minute is example of flow Amt of Water in Tank at a particular time is an example of Stock. Amt of Water flowing from tap per minute is example of flow Economic Concept of Stock and Flow NATIONAL WEALTH NATIONAL INCOME It means total assets of a Nation at particular point of time It means value of goods and services produced by nation over a period of time This is Stock (Measured at a particular point of time) This is Flow (Measured over a period of time) Which has Time Dimension-Stock or Flow? Time Dimension means Measuring something from one point of time to another Stock is measured at a particular point of time (There is only one point OF TIME) Flow is measured over a period of time (from one point to another) (There are two points of time - Starting and ending) Hence Flow has Time Dimension (And not STOCK) Which is Static and Which is Dynamic Concept? Static means Something which is fixed Dynamic means Something which is continuously moving Lets take an example of Water flowing in Tank We know that Amt of Water flowing into tank per minute is example of flow Amt of Water in Tank is an example of Stock Amount of water in a tank at a particular point of time is static ( fixed) Hence, we can say Stock is Static Concept Amount of water flowing in a tank is dynamic (moving). Hence we can say Flow is Dynamic Concept. Difference between Stock and Flow Stock Flow It is a variable which is measured over a particular point of time. It is a variable which is measured over a period of time. It does not have time dimension It has time dimension It is Static Concept It is dynamic concept Example Example National Wealth as on 31 mar 2021 National Income for period 2020-21 Covid Cases as on 1 Apr 2020 Covid Cases Increased during April 2020 Total Money in Circulation as on 31 Mar 2021 New Money printed during 2020-21 NCERT Questions Q3 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. -a- Difference between stock and flow: Stock Flow It is a variable which is measured over a particular point of time. It is a variable which is measured over a period of time. It does not have time dimension It has time dimension It is Static Concept It is dynamic concept Example Example National Wealth as on 31 mar 2021 National Income for period 2020-21 Covid Cases as on 1 Apr 2020 Covid Cases Increased during April 2020 Total Money in Circulation as on 31 Mar 2021 New Money printed during 2020-21 Net Investment is a Flow Variable. Capital is a Stock Variable. An example of stock can be the amount or level of water in a tank. At any point of 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 a 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. -ea- Other Books Q1 ____ variable refers to the variable, which is measured at a particular point of time. -a- Stock -ea- Q2 ___ variable are time dimensional. -a- Flow -ea- Q3 Real Flow is also known as ____. -a- Physical Flow -ea- Q4 State true or false with reasons. 1. National Income of a country is a Stock Concept. -a- False National Income of a country is a Flow concept as it is measured over a period of time. -ea- 