•Planned inventories + fixed investment: inversely related to real interest rate•Use money to loan out instead of building something that might not be sold, this effects real interest rate. There is an opportunity cost for it. Could loan money out at interest rate R instead of using money to build new houses, etc.•Planned Investment function: I = i^ - dr (i^= i bar= amount of investment that occurs independent of RIR, dr= d is coefficient/number, r is real interest rate)•Net Exports: what is the exchange rate? Approximate by looking at real interest rate.Assume NX are negatively related to RIR.As RIR increases the demand for domestic assets increases.=an increase for the demand for domestic currency, leads to appreciation of domestic currency. You get more euros per dollar than you did before. Ultimately, domestic goods become more expensive to foreigners, and our imports become cheaper. Exports increases, imports decrease, net exports decrease.•Net Export Function:NX = NX^-xrx is a coefficient, as RIR rises, the demand for domestic assets increases, the
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