Variables that directly affect the demand for real balances include:

Question

Quizplus · Accepted Answer

The demand for real balances is directly affected by the level of income (as income increases, demand for money for transaction purposes increases) and the interest rate (as higher interest rates make holding money less attractive). The supply of money, on the other hand, affects the availability of real balances but is not a direct determinant of the demand for them.

Variables That Directly Affect the Demand for Real Balances Include