Investment spending and aggregate spending

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Keynes said it was the stock market crash of October, 1929 that was the trigger mechanism for the Great Contraction from 1929 to 1933. He believed that the crash caused expectations to become catastrophically pessimistic. Use the Keynesian Cross Model equations and graphs to explain what happens to: (1) investment spending; (2) aggregate spending; (3) real GDP. Explain how a $100 billion decrease in investment spending could cause a $400 billion decrease in real GDP.

Reference no: EM13737152

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