You have to decide which of the following items are stocks and
which are flows: 1) your knowledge about driving, 2) the number
of car accidents you had last year, 3) your shoes, 4) the
level of your income. Choose the best option below.
1. Items 1) and 3) are stocks.
2. Items 1) and 4) are stocks.
3. Items 1), 3), and 4) are stocks.
4. All of the items are stocks.
Choice 1 is correct. Your knowledge about driving is part
of your stock of human capital. It produces services taking the
form of safe travel. Your shoes are part of your stock of
physical capital. They produce the services of keeping your feet
dry and comfortable. The number of car accidents per unit time,
is a flow. The total number of car accidents you have ever had
would be the corresponding stock. Your income is the flow of
returns in the form of goods, services and leisure you can enjoy
from the total stock of physical and human capital you own. Its
size depends, of course, on how you manage your stocks of both
types of capital---that is, how good you are at investing, and
how you take care of your health.
Keep in mind that a stock represents the level of something
at a given point in time---your manners, your habits, the number
of cars you own, the number of cars in the economy, the number
of apples on the shelf in the grocery store, etc. Flows represent
streams through time such as a stream of output from the
stock of capital that produces it or a stream of additions to of
subtractions from a stock of capital. You might have been confused
about your income being a flow when it was referred to as the
level of income. Though we very frequently talk about the
level of the stock of something, it is also appropriate to talk
about the level of a flow as in, for example, the level of a river.
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