Monetary policy is:
A) equally effective in dealing with real shocks and aggregate demand shocks.
B) more effective in dealing with real shocks than with aggregate demand shocks.
C) less effective in dealing with real shocks than with aggregate demand shocks.
D) totally ineffective in dealing with real shocks and aggregate demand shocks.

Question

Quizplus · Accepted Answer

Monetary policy is primarily designed to influence aggregate demand by changing interest rates and money supply. Therefore, it is more effective in dealing with demand shocks than with real shocks, which are caused by factors outside the economy (such as natural disasters or changes in technology). Monetary policy can do little to address real shocks and their impact on the overall economy.

Monetary Policy Is