Inhabitants of Pandora use stone beads as money. On average, every stone bead is used 5 times per year to carry out transactions. The total supply of beads is 50 million. According to the quantity theory of money, the level of aggregate spending in Pandora must be 250 million.

a) What is the level of aggregate spending in Pandora according to the quantity theory of money? b) Suppose the inhabitants of Pandora start using less money to conduct the same number of transactions (i. e., each individual carries fewer beads). What is the effect on the velocity of money?

Question

Angelina English

Business

3 May, 00:35

Inhabitants of Pandora use stone beads as money. On average, every stone bead is used 5 times per year to carry out transactions. The total supply of beads is 50 million. According to the quantity theory of money, the level of aggregate spending in Pandora must be 250 million.

a) What is the level of aggregate spending in Pandora according to the quantity theory of money? b) Suppose the inhabitants of Pandora start using less money to conduct the same number of transactions (i. e., each individual carries fewer beads). What is the effect on the velocity of money?

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Answers (1)

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Chace Maxwell · Answer 1

The correct answers are 200 million; increase.

Explanation:

The aggregate expense is the approximate value of the goods and services that an economy will produce. It measures its economic activity, or gross domestic product. Its definition in terms of the variables of the components is the sum of consumption, expected investments and public spending and net exports. The factors that affect it usually alter the estimated value. These factors must initially affect the variables of the components in order to alter the net aggregate.