Bring Out a comparison of the Keynesian Theory of Demand for Money with Friedman’s Version of Quantity Theory of Money.

Bring Out a comparison of the Keynesian Theory of Demand for Money with Friedman’s Version of Quantity Theory of Money. 

Ans. When comparing the money demand frameworks of Friedman and Keynes, several differences arise 

–Friedman considers multiple rates of return and considers the RELATIVE returns to be important. 

–Friedman viewed money and goods and substitutes. 

–Friedman viewed permanent income as more important than current income in determining money demand. Friedman’s money demand function is much more stable than Keynes’. Why? Consider the terms in Friedman’s money demand function: Permanent income is very stable, and the spread between returns will also be stable since returns would tend to rise or fall all at once, causing the spreads to stay the same. So in Friedman’s model changes in interest rates have little or no impact on money demand? This is not true in Keynes’ model. If the terms affecting money demand are stable, then money demand itself will be stable. Also, velocity will be fairly predictable.