ECON2123 Tutorial 1: GDP, Unemployment and Inflation, Economy A with one firm, called Tree,that produces apples, using air and water (at no cost); with three people, called, The firm Tree is owned by Steven, is managed by Jobs and, sells its product to Cook. However, others—such as imports and exports, wages and salaries, tax payments, social security benefits, and dividends—are only flows, none has a direct stock counterpart (it is impossible to conceive of a “stock of imports” or a “stock of wages and salaries”). This preview shows page 5 - 9 out of 14 pages. The HDI is composed of per capita GDP, life expectancy, and literacy rate. This earlier upsurge in the flow of investment was usually brought on by a decrease in the stock of capital during the preceding depression when the flow of investment fell below that of the preceding period of prosperity. Gross Domestic Product (GDP) represents the value of final. GDP, or gross domestic product, is the total value of all final goods and services. You cannot quote because this article is private. GDP is a flow that is measured in dollars, euros, or other currency units per year. ブログを報告する. At the end of year 2017, Steven, pays Cook 500 HKD for cooking for their family and Jobs, At year 2017, Tree sells 100 apples to Cook, at a price of 10. Imports may affect the size of business inventories or the stock of capital goods; wage and salary receipts devoted to the purchase of newly produced houses may affect the stock of housing. Therefore, it is a flow variable, and. Some people fail to make a distinction between the amount of money and the spending of money. Stock and Flow Variables Explained: A Closer Look at Apple. paid for 500 HKD, while Steven kept the profit of 500 HKD. The flow variables represent the flows in the system (i.e. The number of persons who find employment may be, say, 100,000 for a given time period, the month of June.   Terms. Some macroeconomic variables that have flow magnitudes also have direct counterpart stock variables. Some macroeconomic variables that have flow magnitudes also have direct counterpart stock variables. a revised measure (HDIF) that replaces the stock measures with flow variables. The best example of this is the relationship between the stock of capital and the flow of investment. Because it is approximately constant, it can have no significant effect on the flow of net investment in the following period. Is GDP a stock variable or flow variable Ding Dong Department of EconomicsHKUST from ECON 2123 at The Hong Kong University of Science and Technology By definition, stocks can exert an influence on flows only if the time period is long enough to produce the required change in stocks. Thinking of those variables as the difference between accumulated. Notice, however, that the entry is not “inventories” which is clearly a stock, but rather “change in inventories,” which is just as clearly a flow, because a change in any variable can only be measured over a period of time. What is the GDP of Economy A at year 2017? A stock market is a private or public market for the trading of company stock and derivatives at an agreed price. Privacy Policy3. Thus, wealth is a stock since it can be measured. Most of the studies use. Some of these figures such as “change in business inventories,” may at first glance appear to measure stocks. Inventory investment is a quantity measured per unit time, so it is a flow variable. Please try again later. The basis of distinction is measurability at a point of time or period of time. Share Your Word File The number employed is say, 90 million at a point in time (on a particular day) it is nonsense to speak of the number employed as 90 million per year. Gross Domestic Product (GDP) represents the value of final goods produced by the economy during a given year. However, the flow of investment itself depends, among other things, on the size of the capital stock. GDP is output in some period of time, so it is a flow.   Privacy Gross domestic product (GDP) is A. a stock. For example, if the net effect of the flows of gross investment and capital consumption is an increase in the stock of capital between January 1 and December 31 amounting to a fraction of 1 percent of the January 1 stock of capital, then the capital stock may be assumed to be approximately constant. | GDP, or gross domestic product, is the total value of all final goods and services. The housing stock and the flow of residential investment are linked together real GDP and real wages, which are all cyclical variables, it is not surprising. They simply equate the two, perhaps because whatever money they get their hands on they promptly spend. Assuming that the flow was at a fixed rate over the year, this reading would also indicate that water had flowed in at a rate of 7 million gallons per weak or 1 million gallons per day. A flow shows change during a period of time whereas a stock indicates the quantity of a variable at a point of time. The stock of capital can increase only as a result of an excess of the flow of investment or of new capital goods produced over the flow of capital goods consumed. That investment is part of gross business investment, or I, for 2017. Our mission is to provide an online platform to help students to discuss anything and everything about Economics. For some flows that have a direct counterpart in a stock, statistics on both the stock and the flow variable are unfortunately reported under headings that are practically the same. For example, the number of persons employed increases, decreases, or remains unchanged between two points in time, depending on the number of persons who secure employment and the number of persons who leave employment during the intervening period. See Section 2-1. A stock market is a private or public market for the trading of company stock and derivatives at an agreed price. Every entry in that account is a dollar figure measuring a flow. Another gauge may indicate that the flow of water into the reservoir amounted to 365 million gallons over the year then ended. Failed to save quote. Before publishing your Articles on this site, please read the following pages: 1. Economics also distinguishes between a flow variable and a stock variable. Course Hero is not sponsored or endorsed by any college or university. Flow variables can be viewed as a video camera recording change over time. There are other illustrations of the stock flow distinction in the national income and product account. We take stock of what is known about public investment in the member states of the public investment (a flow variable), both relative to GDP, in those old EU. So the firm gains revenue from, Cook, pays wages to Jobs and keeps to profit (revenue-wage, At year 2017, Cook spent 1,000 HKD on apples, Jobs got. Is GDP a stock or a flow - Answers. Net additions of GDP to existing capital stock are stocks, because they don't flow. is a of a stock variable is real GDP and A) capital. These components of GDP are personal consumption (C), gross private Private investment is a flow variable that adds to the stock of capital during a period. This website includes study notes, research papers, essays, articles and other allied information submitted by visitors like YOU. The Hong Kong University of Science and Technology, ECON2123-Practice+Questions+_Midterm2_.PDF, The Hong Kong University of Science and Technology • ECON 2123, ECON2123 - 1 Some Key Concepts (Ch1 and 2).pdf, ECON2123+-+1+Some+Key+Concepts+_Ch1+and+2_, Copyright © 2020. Once we realise that the variable money is a stock and the variable spending is a flow, there can be no equating of the two. Powered by Hatena Blog Far from being equal, however, the two at times do change in opposite directions to produce a combination of more money and less spending or less money and more spending. Stock variables can be viewed as a snapshot showing a measure at any given point. It would be meaningless to describe this as 50 million gallons a year, a month, a weak, or a day. GDP increment). an example of a flow variable is. Answer to Which of the following are stock variables. Although we are primarily concerned with elementary theory in this article, we will devote some attention to more advanced theory in which changes in such critical stocks as the stock of capital affect the all-important flows of income and product. Share Your PPT File, Static Economics: Scope, Importance and Limitations, Public Sector Enterprises or Undertakings in India. As is apparent, this may continue an infinitum and carry with it the endless sequence of ups and known as business cycles. Course Hero, Inc. To begin with, stocks and flows are both variables, they are quantities that may increase or diminish over time. GDP is an inflow to the stock of inventory in the economy. In contrast, the numbers of persons who secure new jobs or leave employment are flow variables. Definition: GDP is the final value of the goods and services produced within the geographic boundaries of a country during. The basic difference between the stock variable and the flow variable is that. Is GDP a stock variable or a flow - Answers. As per the definition, Variables that are measured at a point of time are called stock variables whereas variables measured over a period of time are flow variables. With respect to this relationship between the flow of investment and the stock of capital, we may define the short-run period as one in which changes in the stock of capital are too small to influence the flow of investment. Consider a factory built completely in 2017. The Market for Derivatives is Not Bigger Than World GDP. In the simplest formulation of Keynesian theory, the flow of consumer spending is determined by the flow of income, and the flow of income equals the flow of consumer spending plus the flow of investment spending. Similarly, the statement that total spending for final output amounted to $2,629 billion is meaningless until we specify the time period, the year 1980, during which this amount was spend. Nominal GDP is simply the Gross Domestic Product in terms of the current value of. Stock variables can be viewed as a snapshot showing a measure at any given point. For example, U.S. nominal gross domestic product refers to a total number of dollars spent over a time period, such as a year. Is GDP a stock variable or a flow - Answers. Flow variables can be viewed as a video camera recording change over time. To say simply that the stock of money is $375 billion has no meaning until we specify the point in time— March 31, 1980—at which this was the stock.