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28 April, 22:34

In the IS-LM model, which two variables are influenced by the interest rate? supply of nominal money balances and demand for real balances demand for real money balances and investment spending demand for real money balances and government purchases supply of nominal money balances and investment spending

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  1. 28 April, 22:52
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    Demand for real money balances and investment spending

    Explanation:

    In a case where income is high, there is increased demand for real money balances. People would want to hold more money for transactions. Then interest rate is expected to be higher to keep money supply and liquidity demand at equilibrium.

    Investments spendings are higher when the interest rate is low and also lower with higher interest rates.
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