When consumers reduce spending, the reduction in velocity of money is split between

Question

Quizplus · Accepted Answer

When consumers reduce spending, it leads to a reduction in the velocity of money, which in turn leads to a decrease in economic growth. This is because fewer transactions are occurring in the economy. However, it also leads to a decrease in demand for goods and services, which can lead to a decrease in inflation. Therefore, the reduction in velocity of money is split between a decrease in growth and a decrease in inflation.

When Consumers Reduce Spending, the Reduction in Velocity of Money