Question

Briefly describe in your own words the difference between a stock and a flow. For each of the following activities, determine whether it is a stock concept or a flow concept:

(a) Sue earns $5.75 per hour working at the Burger Barn.

(b) On his way home from work, Sam finds a ten-dollar bill.

(c) Upon graduation, John accepts a job with a salary of $2000.

(d) Jennifer saves 10% of her monthly income.

(e) Alex saves $1,000 a year.

(f) Japan has a capital to labor ratio of 10 where China has a capital to labor ratio of 2.

Answer 1

A stock variable is measured at a specific point of time, whereas a flow variable is measured over (during) a specified period of time. Therefore:

(a) Sue's earning - Flow variable (earning per period of 1 hour)

(b) Finding $10 bill - Stock variable (She finds it at a point of time)

(c) John's salary - Flow variable (earning per period of 1 year)

(d) Jennifer's saving - Flow variable (saving per period of 1 month)

(e) Alex's saving - Flow variable (saving per period of 1 year)

(f) capital-labor ratio - Stock variable