1.

Differentiate between :(a) Stock and Flow(b) Gross and net investment

Answer»

(a) Stock and flow-

S. No.StockFlow
(i)Stock is a measure of economic variable at a certain point of time.Flow is the measure of economic variable in a certain period of time.
(ii)Stock is a static concept.Flow is a dynamic concept.
(iii)There is no time period of stock.There is a time period of flow.
(iv)Stock affects the flow.Flow affects the stock both directly and indirectly.
(v)Property, workforce, capital, etc. are the examples of stock.Income, expenditure of currency, capital formation, interest on capital, etc. are the examples of flow.

(b) Gross and net investment-

(i) Gross Investment – Increase in the value of capital goods during a specific period is called gross investment. Examples of gross investment are new machine, new building, new dam, new canal, new equipment for generation of electricity and electricity lines, etc. Already in use machines, old houses, old dams and expenditure on repairs’of old canals are also included in gross investment.

Gross investment = Net investment + Depreciation

(ii) Net Investment – To calculate net investment we deduct depreciation on physical capital goods from gross investment. If depreciation of physical capital goods i.e., depreciation is deducted from gross investment, it will give us net investment. Production and productive capacity improves only along with increase in net investment.

Net investment = Gross investment – Depreciation.


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