Suppose that investment demand in a given economy is predicted to be weak next year, say 10 percent below this year's level, because of an exogenous shock. All other components of aggregate demand are predicted to be at levels comparable to this year's. These levels were consistent with high employment and relatively stable prices. For each of the following macroeconomic systems, explain the effects of this exogenous fall in aggregate demand and explain the proper policy response implied by the model: that is what action should the policymaker take?
a. Classical model
b. Keynesian model
c. New classical model