Monetary policy is much less effective at combating a real shock than an aggregate demand shock.

Question

Quizplus · Accepted Answer

Monetary policy can influence aggregate demand by manipulating interest rates and the money supply, but it cannot directly address real shocks such as natural disasters, supply chain disruptions, or changes in technology. Real shocks can have a significant impact on the economy, but their effects cannot be fully offset by monetary policy alone. Other policies such as fiscal policy may be more effective in responding to real shocks.

Monetary Policy Is Much Less Effective at Combating a Real