Difference between stock and flow

An economy is generally classified into the following four sectors:

(i)  Household sector  It engaged in the consumption of goods and services.

(ii) Producing sector It engaged in the production of goods and services.

(iii)  Government sector It engaged in such activities which are related to taxation and subsidies as well as consumption and production.

(iv) Rest of the world It engaged in exports and imports.

The circular flow of income and product involves two basic principles:

(i) Real flow of income implies the flow of factor services from the households sector to the producing sector.

(ii) Flow of income across different sectors always implies the identity between payments and receipts.

(i) Population of a country is an example of stock as it is measured at a point of time.
(ii) Number of births is an example of flow as it is measured per unit of time.

Difference between depreciation and depreciation reserve fund

The basis of classification is the end-use of the product. Goods which are used by the producers in the process of production such as raw material or goods purchased for resale are known as intermediate goods, e.g. shirt purchased by a firm for resale. These goods are still within the production boundary. Goods which are outside the boundary line of production and are ready for use by their final users are called final goods, e.g. shirt purchased by a consumer.

(i) Expenditure on maintenance of an office building is intermediate expenditure.
    Reason Expenditure on maintenance of an office building will be considered as a raw material, so it should be    considered as intermediate expenditure.
(ii)Expenditure on improvement of machine in a factory is final expenditure.
    Reason Expenditure on improvement of machine in a factory is a kind of capital investment, so it should be considered as final expenditure.

(i) Ice-cream purchased by a consumer is a consumer good.
Reason Here, ice-cream is purchased for the direct satisfaction of human wants.
(ii) Plant and machinery of XYZ company is a capital good.
Reason XYZ company uses plant and machinery in the process of production to produce final products.

(i) Computers installed in an office are final products.
Reason Offices buy computers as long-term durable products and make investment for them. That's why it is considered as a final product.
(ii) Mobile sets purchased by a mobile dealer are intermediate products.
Reason  A mobile dealer purchase mobile sets for reselling purpose. That's why it is an intermediate product.

The Great Depression took place in 1929 which adversely affected the developed economies of Europe and North America. There was extreme fall in Aggregate Demand due to fall in income, which led to a vicious circle of poverty. Demand for goods in the market was low. Many factors of production were lying idle, workers were thrown out of their jobs. The consequences of Great Depression gave birth to the study of macroeconomics.