Keynes's theory of the demand for money implies that velocity is
A)not constant but fluctuates with movements in interest rates.
B)not constant but fluctuates with movements in the price level.
C)not constant but fluctuates with movements in the time of year.
D)a constant.

Question

Quizplus · Accepted Answer

Keynes's theory of the demand for money suggests that velocity is not constant but fluctuates with movements in interest rates. This is because the demand for money is inversely related to the interest rate, meaning that as interest rates rise, the demand for money falls and vice versa. As a result, changes in interest rates can impact the velocity of money circulating in the economy.

Keynes's Theory of the Demand for Money Implies That Velocity