Question

Identify the correct statements:
(A) Depreciation is a flow concept
(B) Money supply is a stock concept
(C) Investment is a stock concept
(D) Depreciation is an annual allowance for wear and tear of a consumer good
Choose the correct answer from the options given below:

• A. (A) and (C) only
• B. (A) and (B) only
• C. (A), (B), (C), and (D)
• D. (B), (C), and (D) only

Answer 1

The Correct Option is C

All the statements are correct, as depreciation is a flow concept, while money supply is a stock concept.

Answer 2

Depreciation is considered a flow concept because it represents the amount of value lost by an asset over a period of time, typically annually. Depreciation flows over time as the asset's value decreases due to wear and tear, obsolescence, or usage. It is recorded periodically, such as on an annual basis, and directly affects the financial statements, particularly the income statement and balance sheet.

On the other hand, money supply is a stock concept. It refers to the total amount of money available in an economy at a specific point in time, including cash, coins, and demand deposits. Money supply is measured at a particular moment, and it does not change unless there is an increase or decrease in the quantity of money circulating in the economy.

These two concepts differ in terms of their measurement: depreciation is measured over a period of time (flow), while money supply is measured at a specific point in time (stock). Hence, both statements are correct, as they accurately describe the nature of these economic terms.