Answer:
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.
In the IS–LM model, the two variables that are influenced by the interest rate are option B. demand for real money balances and investment spending. The IS–LM model is also known as the Hicks–Hansen model and it an economic tool available to determine the relation between the interest rates and assets market.
Further details about the model are given below:
• The full form of the model is "investment-savings" (IS) and "liquidity preference-money supply" (LM) and is represented on a graph.
• The model helps in finding the relation between the money market and the market available for economic goods.
Therefore, the correct option is B i.e. demand for real money balances and investment spending are influenced by the interest rate.
Learn more about the money balances here:
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