Flow Variables and Stock Variables

Stock Variables

Stock variables represent the existing reserves or quantities measured at a specific point in time. They show the current state or accumulation of something at a particular moment. In other words, they are essentially an inventory or reserve measured at a given time.

Flow Variables

Flow variables refer to changes occurring in a stock variable and are typically measured over a period of time. They represent the amount that changes within a specific timeframe and require a temporal dimension to be understood. Flow variables show the rate or speed at which changes happen.

Relationship Between Flow and Stock Variables

Flows and stocks are closely related, as stock variables reflect the accumulation of past flows. Meanwhile, flow variables represent changes in the current stock or accumulation.

Using an analogy, imagine an open faucet filling a bathtub. The stock variable is the amount of water in the bathtub at any given moment, while the flow variable is the amount of water coming from the faucet, measured over time, such as gallons per minute. For example, the bathtub might contain 20 gallons, and the faucet might release 3 gallons per minute. Notice that the amount of water in the tub and the flow from the faucet are measured in different units.

Examples of Flow and Stock Variables

In economics, GDP is one of the most important flow variables, as it indicates the total flow of money circulating in the economy over a specific time period, usually annually, but also quarterly or semi-annually. Other examples of flow variables include personal income, inflation rate, and unemployment rate.

On the other hand, examples of stock variables include inventories, physical capital, total public debt, or an individual's net worth.