Question

Why does the Keynesian view of the demand for money suggest that velocity is unpredictable?

Short answer

According to Keynes, speed and velocity are unpredictable because interest rates, which change considerably, affect the purchasing power and so velocity.

Step-by-step solution

Step 1. Define demand.

Demand refers to the quantity of a product that customers are capable and willing to buy at various prices throughout a particular time period.

Step 2. Explanation

According to Keynes, speed and velocity are unpredictable because interest rates, which change considerably, affect the purchasing power and so velocity.

Furthermore, Keynes' research suggests that when anticipations of the normal market interest rates change, so does the purchasing power. According to Keynes, these estimates fluctuate sporadically, meaning that money demand as well as velocity are also unstable.