If M is $800, P is $2, and Q is 1,200, then
A) aggregate expenditures will be $1,600.
B) aggregate expenditures will be $960,000.
C) V must be 3.
D) V must be 1.5.

Question

Quizplus · Accepted Answer

According to the formula for aggregate expenditures, AE = C + I + G + NX, where C is consumption, I is investment, G is government spending, and NX is net exports. In the equation given in the question, M (which represents consumption) is not defined or given, so it cannot be used to calculate aggregate expenditures directly. However, we can use the formula in another way to determine the value of V (velocity of money). 
Using the formula, M x V = P x Q, we can substitute the values given in the question: 
800 x V = 2 x 1,200 
V = 3 
This means that each dollar of income is being spent three times (on average) in the economy, and this information can be used to determine aggregate expenditures. 
AE = M x V + I + G + NX 
Since I, G, and NX are not given or defined, we can assume they are zero (i.e. no investment, government spending, or net exports). 
AE = 800 x 3 = 2,400 
Therefore, the answer is not A or B, and the best choice is C since it correctly calculates V based on the given information.

If M Is $800, P Is $2, and Q Is