A central bank can always keep an economy at the Solow growth rate by exactly offsetting any shock to aggregate demand.

Question

Quizplus · Accepted Answer

While a central bank can attempt to mitigate the effects of a shock to aggregate demand, it cannot always precisely offset the shock and keep the economy at the Solow growth rate. Factors such as external shocks, changes in productivity, and structural inefficiencies can all impact the economy and its growth rate.

A Central Bank Can Always Keep an Economy at the Solow