Question

Use a four sector keynesian model to describe what effect a reduction in the exogenous components of investment and consumption?

Answer 1

The four-sector Keynesian model is the complete Keynesian model, containing all four macroeconomic sectors - household (consumption), business (investment), government, and foreign (net exports). The sum of these four sectors expenditures is GDP. A reduction in the exogenous components of investment and consumption will cause the decrease in both consumption and investment, which will cause a decrease in GDP.