Effects of Policies on Real Ex--rate 1. Home fiscal policy (expansionary) →S→(S-)↓ → Domestic currency invested abroad↓ Domestic currency appreciates → Nominal ex--rate↑ → Real ex--rate↑(if prices do not change) Domestic goods become more expensive → Exports↓& imports↑
Investment Business fixed investment Equipment and structures that businesses buy to use in production Residential investment New housing that people buy to live in and that landlords buy to rent out Inventory investment Goods that business put aside in storage, including materials and supplies, work in process, and finished goods