6 Negative Shock to the Aggregate Demand [10 points] Suppose Canada has reached the long run equilibrium (Le. full employment). Suddenly Canadian Investors becomeless optimistic about economic conditions and reduce temporarily their total investment in Canada. Use the Key-nesian Cross Model to explain what would happen to the level of output in the short run after the shock (recall thatCanada reached its full employment level before the shock). Support your answer with a graph the Keynesian crossand explain carefully.




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