Question #2176

In a stock-flow consistent macroeconomics, the sectoral balance stocks all sum to zero.

Answer #10924

Answer: False

Explanation

The answer is False.

The sectoral balances relate to flows not stocks.

All expenditure aggregates - such as government spending, private consumption, private investment, exports (minus imports) are flows. They add up to total expenditure or aggregate demand which is also a flow rather than a stock. Aggregate demand (a flow) in any period and it jointly determines the flow of income and output in the same period (that is, GDP) (in partnership with aggregate supply).

So while flows can add to stock - for example, the flow of saving adds to wealth or the flow of investment adds to the stock of capital - flows can also be added together to form a "larger" flow.

For example, if you wanted to work out annual GDP from the quarterly national accounts you would sum the individual quarterly observations for the 12-month period of interest. Conversely, employment is a stock so if you wanted to create an annual employment time series you would average the individual quarterly observations for the 12-month period of interest.

The question thus tests the precision of language as they relate to economic concepts. Too often the language is loose and the concepts become confused as a result.

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