The demand for real money balances is affected by interest rates and real income.

Name: The demand for real money balances is affected by interest rates and real income.
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Question

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The demand for real money balances is influenced by interest rates because higher interest rates make holding money less attractive (due to the opportunity cost of holding money instead of earning interest). Real income affects it because as income increases, people tend to hold more money for transactions and precautionary reasons.

The Demand for Real Money Balances Is Affected by Interest