-Trade policy: let’s see how import quotas affect the market for loanable funds. Since an import quota reduces imports at any real exchange rate, net exports rise. Therefore, foreigners will need to buy more euros to buy EU net exports, which will shift the demand for euros (D€) to the right. This will appreciate the real exchange rate, but will have no effect on the market for loanable funds, and therefore the real interest rate will remain the same. Since the real interest rate does not change, neither do net capital outflows. However, the appreciation of the euro will increase imports and decrease exports (domestic goods are more expensive relative to foreign goods). This will gradually return the demand for euros (D€) to its initial state. Therefore, we can conclude that trade policies do not affect the trade balance.