Which of the following statements regarding stocks and flows is/are correct?

1. Money supply is a stock whereas income is a flow.

2. GDP is a stock variable.

3. GNP is not comparable.

Select the correct answer using the code given below:

Solution

Money supply (amount of money) is a stock variable which income is a flow. National income (for e.g. GDP) is a flow. Stock and flow variables A flow is a quantity that is measured with reference to a period of time. Thus, flows are defined with reference to a specific period (length of time), e.g., hours, days, weeks, months or years. It has a time dimension. National income is a flow. It describes and measures the flow of goods and services which become available to a country during a year. The income of a person is a flow that is earned during a week or a month or any other period. Likewise, investment (i.e., adding to the stock of capital) is a flow as it pertains to a period of time.