Stock vs. Flow

We'll start with stock, and then get to flow.

Stock explained

Imagine you carry your wallet around with you everywhere you go. Periodically, some bills are added to your wallet; periodically, some bills are removed and spent. The total money ($) in the wallet can be calculated at any point in time. This is a stock concept.

A stock is a quantity measured at any point in time.

A common analogy is often a bathtub with water in it. At any single point in time, the amount of water in the tub is considered the stock.

Conceptually speaking, we can think of the stock (in our wallet or bathtub) as the sum of all flows (cash in / out or water in / out).

Stock = Σ All Flows

Some other common stock concepts include (but are not limited to):

  • Wealth = Σ Savings
  • K stock = Σ Net Investment
  • Total Government Debt = Σ Gov. Deficits

Notice how the stocks here are defined values at a given point in time...

  • Wealth = Σ Savings
  • K stock = Σ Net Investment
  • Total Government Debt = Σ Gov. Deficits

...and the flows are all "transactions" that affect the stock over time.

  • Wealth = Σ Savings
  • K stock = Σ Net Investment
  • Total Government Debt = Σ Gov. Deficits

Flow explained

Imagine you've got your same wallet from before. Bills are added / spent from your wallet, same as before. The rate of flow of this money—in and out of your wallet—over a given period of time can be calculated. This is a flow concept.

A flow is a quantity measured over a period of time.

Relating to our bathtub analogy, the amount of water being added / removed from the tub at a given point in time can be though of as the flow.

Conceptually speaking, we can think of the flow (in our wallet or bathtub) as the change experienced over a period of time (amount of cash in / out per week or amount water in / out per minute).

Flow = Δ Stock

Some other common stock concepts include (but are not limited to):

  • Savings = $ per month
  • Net Investment = $ per year
  • Government Deficit = $ per year
  • Gross Domestic Product (GDP) = $ per year
  • Inflation = ΔP% per year

Notice how all the flows here...

  • Savings = $ per month
  • Net Investment = $ per year
  • Government Deficit = $ per year
  • Gross Domestic Product (GDP) = $ per year
  • Inflation = ΔP% per year

...are amounts that change the stock over a period of time.

  • Savings = $ per month
  • Net Investment = $ per year
  • Government Deficit = $ per year
  • Gross Domestic Product (GDP) = $ per year
  • Inflation = ΔP% per year

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