When the central bank keeps the interest rate controlled, a fall in its price target will immediately cause:Group of answer choicesthe LM curve to shift downward.the AD curve to shift leftward.the price setting curve to shift down.the wage setting curve to shift upward.the wage setting curve to shift downward.

When the central bank controls the interest rate, the aggregate demand (AD) curve is downward sloping because:Group of answer choicesa reduction in the money supply (M) will cause an increase in the interest rate, a reduction in investment, and a reduction in output.a reduction in the aggregate price level (P) will cause the central bank to reduce the interest rate and thus increase output.a reduction in P will cause an increase in the real wage, a reduction in employment, and a reduction in output.as P increases, goods and services become relatively more expensive and individuals respond by reducing the quantity demanded of goods and services.

If the interest rate increases, thenGroup of answer choicesthere will be an upward movement along the money demand curve.there will be a downward movement along the money demand curve.the money demand curve will shift to the right.the money demand curve will shift to the left.

TipsQuestion textAssuming the central bank pursues real interest targeting, in a graph with the real interest rate on the vertical axis and national income on the horizontal axis, a reduction in the expected rate of inflation can be represented as:Question 2Answera.A movement along the IS curveA commercial bank purchases treasury bonds during the opening hours of the stock marketb.An upward shift of the LM curvec.A downward shift of the LM curve d.A  rightward shift of the IS curve

Consider the IS/LM model where the LM is horizontal. Suppose that the central announces an increase in its target cash rate. Other things being constant, this would result inGroup of answer choicesa shift up in the LM curve and a reduction in investment expenditurean unchanged LM curve and lower level of outputan unchanged LM curve, since the yield curve is unchanged, and lower outputa shift up in the LM curve and a higher level of output.

If the central bank lowers the target inflation rate, then the monetary policy rule line will:ResponsesA shift downshift downB become steepebecome steepeC become flatterbecome flatterD shift up