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    Question

    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:
    A 1 only Correct Answer Incorrect Answer
    B 2 only Correct Answer Incorrect Answer
    C 3 only Correct Answer Incorrect Answer
    D Both 1 and 2 Correct Answer Incorrect Answer
    E Both 2 and 3 Correct Answer Incorrect Answer

    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.

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