between net investment and capital which is a stock and which is a flow? compare both with flow of water into tank.
Dear Student,
Before classifying net investment and capital into stock and flow variables, we must know the difference between a stock and a flow variable.
Having understood the difference between, stock and flow, we can state that net investment is a flow variable as it gives the difference in the investment level over a period of time. While, capital is a stock variable, as it can be measured at any point of time.
Comparison of net investment and capital with a water tank.
An example of stock can be the amount or level of water in a tank. At any point of time the amount or the level of water in a tank can be measured. Similarly, the capital is also a stock variable, as the capital can also be measured at any point of time.
Now, if water is flowing out of a tank through a tap, then the level of water will change over time. The difference in water level over an interval of time is an example of a flow variable. Similarly, net investment gives the difference in the investment level over a period of time.
Before classifying net investment and capital into stock and flow variables, we must know the difference between a stock and a flow variable.
| Stock | Flow |
| he variables that are measured at a particular point of time. For example, bank balance as on 1stOct 2010 is Rs.5000. | he variables that are measured over an interval of time. For example, interest earned on bank deposits for 1 year, i.e. from 1 Oct-2009 to 30 Sep 2010. |
| It has no time dimensions. | It has time dimensions, like 1 year, 6 months, 10 days, etc. |
| Examples: Capital, bank deposits, water in a tank. | Examples: Capital formation, interest on capital, water flowing in a stream. |
Having understood the difference between, stock and flow, we can state that net investment is a flow variable as it gives the difference in the investment level over a period of time. While, capital is a stock variable, as it can be measured at any point of time.
Comparison of net investment and capital with a water tank.
An example of stock can be the amount or level of water in a tank. At any point of time the amount or the level of water in a tank can be measured. Similarly, the capital is also a stock variable, as the capital can also be measured at any point of time.
Now, if water is flowing out of a tank through a tap, then the level of water will change over time. The difference in water level over an interval of time is an example of a flow variable. Similarly, net investment gives the difference in the investment level over a period of time.