Question 3

Explain in detail the process of Monetary Policy transmission of an increase in the cash

interest rate. Use relevant graphs to describe how a Central Bank action on the interest cash

rate ripple through the economy and lead to the target policy goal. (Three connected diagrams

should be used: (1) money supply and demand (2) investment demand schedule (3) AS/AD

diagram. Interest rates is the variable that connects the first and second diagram).