Concept explainers
To explain:
Connection between flow and stock variables
Explanation of Solution
Individual savings are flow variables because it can be measured in per unit of time like savings per month or per year. For example, we say like this, 'Mr. A saves $2000 per month'. Total savings at a particular time is known as wealth. Wealth is a stock variable. Wealth is the amount of money accumulated or saved by the individual in a given period of time. For example, Mr. A’s wealth in 20 years is $400000.
The connection between investment and capital. Investment is a flow variable as it is measured in per unit of time. For example, Mr. A invests $2000 per year in plant and machinery. On the other hand, capital is a stock variable because it can only be measured at a particular point of time. Like the capital stock till date is $500000 of Mr. A. Moreover, change in capital stock is known as net investment.
Again, education is a flow variable and human capital is a stock variable. Education is measured in per year or per month whereas human capital is measured at a particular point of time. We generally say 'Mr. A has studied micro economics this year or he learns four subjects per year’. Human capital is measured as number of educated individuals at a particular point of time. In newspapers we often read this, ‘In 2012, 200 economics graduates are looking for job in financial sector’.
Gold production is flow variable whereas gold is a stock variable. Gold production is measured in per unit of time. Like 200 ounces of gold is produced every year by firm A. On the other hand, the amount of gold in a particular year is 20000 ounces.
Introduction:
Flow variables are that variables that are measured in per unit of time while stock variables are those variables that are measured at a particular time.
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Chapter 14 Solutions
Intermediate Microeconomics and Its Application, 12th edition with CD-ROM
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