In 2020 at the Reserve Bank of Australia (RBA) decreased the target cash rate to 0.1 percent to enable the economy to recover from the severe recession caused by the COVID-19 pandemic. However, on 4th May 2022, the RBA increased the cash rate by 0.25%, to reduce rising inflation rate.

Part A:What type of monetary policy did the RBA implement on 4^thMay 2022? Outline the RBA's monetary policy transmission process, from the announcement through to real GDP.(5 marks)

Part B:The Australian dollar (AUD) started to appreciate against the US dollar (USD), after the RBA increased the cash rate on 4^thMay 2022. Explainwhy and howthe AUD has been appreciating in reaction to the RBA monetary policy action. Your answer must include the actions financial investors in Australia and the United States. You may use the flexible exchange rate diagram above to illustrate your answer. Assume the initial equilibrium point is A.(8 marks).

Part C:What would be the impact of the appreciating AUD on net exports (NX) in Australia and the United states, ceteris paribus? Briefly explain.(2 marks)