Question

Money is a stock variable. This indicates that:

A) money never loses purchasing power.
B) unit of time needs to be specified to ascertain its quantity.

C) the quantity of money is measured at a given point in time.

D) None of the above.

Answer 1

The answer is

C) the quantity of money is measured at a given point in time.

The simple distinguishment between a stock and a flow variable is that, GDP - which is calculated per year or quarterly, is a flow variable (variable measured between a time interval), but the total GDP of any nation of all the years upto now, ie the total amount of goods and services produced in the country since 'the begining', is a stock variable. A flow variable such as GDP, needs a time period to be measured, while a stock variable such as sum of all year's GDP (reflecting all goods and services produced until now), needs a point in time to be measured. Another example being your income and savings. Suppose you earn income, and you don't have to spend, so you save all the income you get. Your savings needs a point of time to be measured since it is stock, as if you measure saving in a time period, suppose 3 months, you are can only measure changes in the saving which is the income itself (as you put your income in savings, income being the 'flow'), not the amount saved.

Money is a stock, as all the money either in anybody's hand or in the nation needs a point of time to be measured. If we take the injection of money in the economy or the monthly income of an individual, it will be flow.