A real balance effect is a shift in consumption resulting from a change in real money balances or financial assets held by an organization or an individual. Usually, the phenomenon occurs when the nominal price level or supply of money changes. On the other hand, the interest rate effect refers to the borrowing and spending behaviors following a change in interest rates. When the central bank adjusts the interest rates, it affects consumer purchasing power.
For instance, when the central bank lowers the interest rates, the other banks also reduce the rates, and people can borrow more money. Lastly, the international trade effect is the impact of global commerce on the economy. Connecting to other countries through trade opens opportunities, promotes innovation, improves productivity, and leads to affordable goods and services.