1: Explain how monetary policy (expansionary or contractionary) is transmitted through the channels

listed below. Draw a schematic diagram with a 2-3 lines explanation.

(Consult the book or online resources)

i. Interest rate (5)

ii. Exchange rate effect on net exports (5)

iii. Wealth effects (5)

iv. Bank lending (5)

(Hint: This is a schematic diagram - r Y

Explaining why output decreases when interest rate increases. Include all the variables that are affected

through a policy change in the diagram and explain the reasons for their respective trends.)