Monetary policy is less effective in counteracting a demand shock than in counteracting a supply shock.

Question

Quizplus · Accepted Answer

Monetary policy is generally considered more effective in counteracting demand shocks than supply shocks because it directly influences demand by adjusting interest rates and influencing spending and investment. Supply shocks, on the other hand, affect the production side and might not be as responsive to monetary policy adjustments.

Monetary Policy Is Less Effective in Counteracting a Demand Shock