You are given the following IS-LM model IS: = ( - ) + (, ) + Where = - ^e A) Assume that LM is given by the relation: r = r(bar). That is, the goal of Central Bank is to keep the real interest rate at r(bar). Explain the effect of a reduction ^e in production. What policy will Central Bank implement? and how will the actual amount of money be affected? Show your answer diagrammatically (IS-LM and money market) and explain.

B) Suppose now that Central Bank targets a specific nominal interest rate i(bar) That is, LM is given by the relation: i = i(bar). What effect will this reduction on production have? What policy will Central Bank implement? and how will the actual amount of money be affected? Show your answer diagrammatically (IS-LM and money market) and explain.