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 or aggregate demand shocks.

Question

Quizplus · Accepted Answer

Monetary policy is generally designed to affect aggregate demand shocks, such as increasing the money supply to spur investment and consumption. Real shocks, such as natural disasters or technological advancements, are more difficult for monetary policy to address as they are factors outside of the economy's control. Therefore, monetary policy is less effective in dealing with real shocks than with aggregate demand shocks.

Monetary Policy Is