By using monetary policy, the Federal Reserve can partially offset the effects of a supply shock.

Question

Quizplus · Accepted Answer

Through monetary policy, the Federal Reserve can adjust interest rates and the money supply to stabilize the economy in response to a supply shock. For example, a supply shock that leads to higher prices could be partially offset by the Federal Reserve increasing interest rates to reduce aggregate demand and inflationary pressure.

By Using Monetary Policy, the Federal Reserve Can Partially Offset