Stock and Flow - Concepts with examples

Stock and flow are widely used concepts in macroeconomics. Stock refers to the value of economic variables at a point of time and Flow indicates the same during a period of time.

Concept of Stock:

Stock refers to the amount or value of a commodity or any variable at a particular point of time. In other words, it describes the state of the economy at a particular time. Hence, the concept of the stock is related to an extremely small period of time.

For example, Suppose, on1st January 2021, The govt has 10 crore rupees as government debt in the economy. It will be known as stock as it is valued at a particular point of time. Or, for other examples, we can say the balance of a bank account on a particular date would be considered as stock.

For microeconomics, the stock concept is related to only the demand for and supply of goods and services at a point of time. On the other hand, in macroeconomics, this concept is related to many variables. It includes wealth, government debt and supply of money etc.

Concept of Flow :

Flow refers to the amount or value of a commodity or any variable during a particular period of time. In other words, it describes the changes in variables of the economy during a particular time. Hence, the concept of flow is related to a long period of time.

For example, Suppose, during a month job, you are earning Rs.15,000 as basic pay, 2,000 as special allowance, and Rs.3,000 for transportation expenses. Thus, all these values are considered as flows as these are not related to a specific point of time. 

For microeconomics, the flow concept is related to only the demand for and supply of goods and services during a period of time. On the other hand, in macroeconomics, this concept is related to many variables. It includes income, the expenditure of money, capital formation and interest on capital, etc.

Mutual Dependence of Stock and Flow:

The mutual dependence of stock and flow can be explained by an example:

Suppose, Your bank account shows Rs.50,000 on 1st January 2021. This is the stock of your savings in the account. The continuous withdrawals from the bank account i.e. Rs.1000 per month is a flow concept. Likewise, continuous deposits of Rs.1500 per month are also a flow concept.

Hre, the important point is that your stock of deposits depends upon the flows of deposits into your bank account. Similarly, the flow of withdrawals depends upon your stock of savings. Thus, there is a mutual dependence between stock and flow.

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References:

Introductory Microeconomics – Class 11 – CBSE (2020-21)