June 10th, 2010 by admin
Economics, business, accounting, and related fields often heed amidst quantities that are bonds & those that are flows. These differ in their units of dimensions. A batch variable is measured at one specific time, & represents a apportion pre-existent at that point in time (say, December 31, 2004 ), which might have amassed in the past. A flow variable is totalled over an interval of time. Therefore a flow would be measured per section of time (say a year ). Flow is roughly analogous to amount or speed in this clarity.
For example, U.S. nominal gross domestic product refers to a sum number of dollars spent during a specific time period, such as a year. Therefore it is a flow variable, & has units of dollars/year. In differentiations, the U.S. favored capital batch is the sum bearing, in dollars, of equipment, buildings, inventories, and other existing resources in the U.S. economy, and has units of dollars. The chart provides an intuitive illustration of how the stock of collateral currently available is increased by the flow of brand-new investment & burned out by the flow of depreciation.
Stocks & flows have different units & are thus not commensurable – they cant be meaningfully compared, alike, combined, or subtracted. However, one might meaningfully take ratios of stocks & flows, or greater or divide them. This is a point of some difficulty in economics, as some upset taking ratios (valid ) with comparing (invalid|null).
The ratio of a stock over a upsurge has units of (units )/ (units) = time. For example, the debt to GDP comparative measure has units of years (as GDP is in all GDP per year ), which yields the interpretation of the debt to GDP ratio as “number of years to compensate off all debt, assuming all GDP devoted to debt repayment”.
A confusing point is that regulating a guideline increment of time enables one to convert a flow to a batch by multiplying by time—in calculus agreement, integrating over time. For example, the sum US GDP in two thousand has units of dollars. Thus in ratios of bonds to flows, the time dimension is mostly separated and the comparative measure voiced as a commission (a dimensionless apportion ).