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The Keynesian Cross we reviewed in class is given by the equality of actual output (Y) and Aggregate demand (D) Y = D C =

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The Keynesian Cross we reviewed in class is given by the equality of actual output (Y) and Aggregate demand (D) Y = D C = co + ci(Y - T) EP* D = C + I + G + CA -,Y - T,Y: - Tp) P where c denotes the marginal propensity to consume, I, T and G the exogenously given Investment, taxes and government expenditures, E the nominal exchange rate, P and P* the domestic and foreign price levels. Suppose that due to sudden news about widespread corruption in Country X, investment in that country declines temporarily from 11 to 12 with 12

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