A central bank can always keep an economy at its long-run growth rate by exactly offsetting any shock to aggregate demand.

Question

Quizplus · Accepted Answer

Although a central bank can use monetary policy tools to influence aggregate demand, it may not always be able to fully offset all shocks to aggregate demand. External factors such as natural disasters, geopolitical events, and shifts in consumer or business behavior can also impact aggregate demand and cannot be controlled by the central bank. Additionally, there may be limitations to the effectiveness of monetary policy, such as when interest rates are already at or near zero.

A Central Bank Can Always Keep an Economy at Its