In reality,the Fed is unable to use monetary policy to keep real GDP exactly at its potential level.

Question

Quizplus · Accepted Answer

The potential GDP is an estimate of the long-term productive capacity of the economy, and it is influenced by factors such as demographics, technology, and institutions, which are beyond the control of the Fed. Additionally, there are lags and uncertainties associated with the transmission mechanisms of monetary policy, which make it difficult to fine-tune the economy to a specific level of output. Therefore, while the Fed can influence the overall level of aggregate demand and supply, it cannot perfectly match them to the potential level of real GDP.

In Reality,the Fed Is Unable to Use Monetary Policy to Keep