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Between net investment and capital which is a stock and which is a flow? Compare with the flow of water and a tank. |
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Answer» Between net investment and capital, capital is stock and net investment is flow. The stock economic and flow economic variables can be better understood with the help of an example. Suppose a tank is being filled with water coming from a tap. The amount of water which is flowing into the tank from the tap per minute is the flow. The quantity of water that existed at a particular point of time is considered as stock. The above example can be compared with net investment and capital. Here, the capital is compared to the water that existed at a particular point of time. The capital is the stock of capital goods existed at a particular period of time. The net investment is compared to the flow of water into a tank. Here, the net investment is considered as the investment which is made during a year to replace the wear and tear of capital goods. |
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