Answer to Question 4:

Which of these items are stocks and which are flows: 1) your sense of humour, 2) the Anglican Church, 3) your computer, 4) the aggregate quantity of goods and services produced in the United States last year.

1. All of the items are stocks.

2. None of the items are stocks.

3. Items 1), 2) and 3) are stocks.

4. Items 3) and 4) are stocks.


The correct choice is 3. Only the aggregate quantity of goods and services produced in the United States last year is a flow---it is the flow of output from the country's capital stock. Your sense of humour is a part of your stock of capital---it produces a flow of amusement services to be enjoyed by yourself and your friends. The Anglican Church represents a stock of ideas, beliefs and behavioral customs as well as (depending upon how it is defined) a stock of church and other buildings. All of this produces a flow of religious services for the community. Your computer is also a capital item---a stock which produces a flow of services for writing essays, keeping track of your money, earning income doing computing on the side and, of course, surfing the Web.

You might have been tempted to treat United States output last year as a stock in the sense that it represents the accumulation of twelve monthly flows. To the extent that those flows were added to inventory, such an alternative interpretation would be correct, although a different wording of the question would have been necessary. To the extent that these flows were consumed, however, the goods and services would no longer exist at the end of the year and it would be inappropriate to call them a stock of additions to capital. If we treat the year as the unit of time, it is obvious that U.S. output during the year is a flow.

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