Monetary policy is LEAST effective in maintaining low inflation and high GDP when
A) there has been a supply shock.
B) there has been a demand shock.
C) the government is running a deficit.
D) consumers do not want to save.

Question

Quizplus · Accepted Answer

Monetary policy is least effective in the face of a supply shock because such shocks affect the production side of the economy directly, making it difficult for monetary policy, which primarily influences demand, to counteract the inflationary or deflationary pressures that result from changes in supply.

Monetary Policy Is LEAST Effective in Maintaining Low Inflation and High