Answer to Question #220770 in Macroeconomics for Chulu

Question

The monetary policy transmission mechanism shows the relationship between

Answer 1

The monetary policy transmission mechanism shows the relationship between the actions of the Federal Reserve Bank and state of the aggregate economy, in particular the gross domestic product$($ GDP$)$.

The Fed targets short term nominal interest rate. Changes in nominal interest rate lead to long term real interest rates, which affect spending on investment and durable goods, eventually leading to a change in GDP.