Suppose that C = $900,I = $300,G = $200,NX = $100,and that the money supply is equal to $300.Based upon these assumptions,velocity is equal to ________________.If consumption and velocity both rise beyond their initial levels,then it follows that another component of spending ___________ necessarily fall.
A) 5; must
B) 5; does not
C) 3; must
D) 3; does not

Question

Quizplus · Accepted Answer

Velocity is calculated using the formula V = (C + I + G + NX) / Money Supply. Here, V = ($900 + $300 + $200 + $100) / $300 = 5. If consumption and velocity increase, it doesn't necessarily mean another component must fall because the total spending can increase with an increase in the money supply or velocity, allowing all components to potentially rise.

Suppose That C = $900,I = $300,G = $200,NX =