The Impact of Expansionary Fiscal Policy at Home on the Real Exchange Rate Expansionary fiscal policy at home, such as an increase in government purchases or a cut in taxes, reduces national saving. The fall in saving reduces the supply of Canadian dollars to be exchanged into foreign currency, from S₁ – I to S₂ – I. This shift raises the equilibrium real exchange rate from ϵ₁ to ϵ₂.