Worth: Mankiw Economics 5e 18 PART IIntroduction Stocks and flows Many economic variables measure a quantity of! understand that this means that it is $10 trillion something-a quantity of money, a quantity ofi per year .(Equivalently, we could say that U.S GDP is $317,000 per second. tween two types of quantity variables: stocks and Stocks and flows are often related. In the point in time, whereas a flow is a quantity mea-i The stock of water in the tub represents the accu- sured per unit of time mulation of the flow out of the faucet. and the The bathtub, shown in Figure 2-2, is the clas- flow of water represents the change in the stock. sic example used to illustrate stocks and flows.i When building theories to explain economic vari- The amount of water in the tub is a stock: it is the ables it is often useful to determine whether the uantity of water in the tub at a given point in i variables are stocks or flows and whether any re- time. The amount of water coming out of the i lationships link them faucet is a flow: it is the quantity of water being Here are some examples of related stocks and dded to the tub per unit of time. Note that wei flows that we study in future chapters measure stocks and flows in different units. Wei> A person's wealth is a stock; income and ex- say that the bathtub contains 50 gallons of water, but that water is coming out of the faucet at 5 penditure are flows The number of unemployed people is a stock; GDP is probably the most important flow the number of people losing their jobs is a flow. variable in economics: it tells us how many dol-i The amount of capital in the economy is a lars are flowing around the economy's circular stock; the e amount flow per unit of time. When you hear someone> The government debt is a stock; the govern say that the U.S. GDP is $10 trillion, you should ment budget deficit is a flow. figure 2-2 Stock Stocks and Flows The amount of water in a bathtub is a stock. it is a quantity measured at a given moment in time. The amount of water coming out of the faucet is a flow per unit of time Rules for Computing GDP In an economy that produces only bread, we can compute gDP by adding up the total expenditure on bread. Real economies, however, include the produc- tion and sale of a vast number of goods and services. To compute GDP for such a complex economy, it will be helpful to have a more precise definition: gre User JOENA: Job EFF01418: 6264_ch02: Pg 18: 24936 #/eps at 1004 II Tue,Feb12,20028:404MUser JOEWA:Job EFF01418:6264_ch02:Pg 18:24936#/eps at 100% *24936* Tue, Feb 12, 2002 8:40 AM Rules for Computing GDP In an economy that produces only bread, we can compute GDP by adding up the total expenditure on bread. Real economies, however, include the produc￾tion and sale of a vast number of goods and services.To compute GDP for such a complex economy, it will be helpful to have a more precise definition: gross 18 | PART I Introduction FYI Many economic variables measure a quantity of something—a quantity of money, a quantity of goods, and so on. Economists distinguish be￾tween two types of quantity variables: stocks and flows. A stock is a quantity measured at a given point in time, whereas a flow is a quantity mea￾sured per unit of time. The bathtub, shown in Figure 2-2, is the clas￾sic example used to illustrate stocks and flows. The amount of water in the tub is a stock: it is the quantity of water in the tub at a given point in time. The amount of water coming out of the faucet is a flow: it is the quantity of water being added to the tub per unit of time. Note that we measure stocks and flows in different units. We say that the bathtub contains 50 gallons of water, but that water is coming out of the faucet at 5 gallons per minute. GDP is probably the most important flow variable in economics: it tells us how many dol￾lars are flowing around the economy’s circular flow per unit of time. When you hear someone say that the U.S. GDP is $10 trillion, you should Stocks and Flows understand that this means that it is $10 trillion per year. (Equivalently, we could say that U.S. GDP is $317,000 per second.) Stocks and flows are often related. In the bathtub example, these relationships are clear. The stock of water in the tub represents the accu￾mulation of the flow out of the faucet, and the flow of water represents the change in the stock. When building theories to explain economic vari￾ables, it is often useful to determine whether the variables are stocks or flows and whether any re￾lationships link them. Here are some examples of related stocks and flows that we study in future chapters: ➤ A person’s wealth is a stock; income and ex￾penditure are flows. ➤ The number of unemployed people is a stock; the number of people losing their jobs is a flow. ➤ The amount of capital in the economy is a stock; the amount of investment is a flow. ➤ The government debt is a stock; the govern￾ment budget deficit is a flow. figure 2-2 Flow Stock Stocks and Flows The amount of water in a bathtub is a stock: it is a quantity measured at a given moment in time. The amount of water coming out of the faucet is a flow: it is a quantity measured per unit of time