The Fed has been unable to offset the effects of negative real shocks with monetary policy.

Question

Quizplus · Accepted Answer

Negative real shocks refer to exogenous events that reduce the potential output of an economy, such as natural disasters, wars or pandemics. Monetary policy can only address demand-side factors, such as interest rates, money supply, or exchange rates, but it cannot boost potential growth or productivity directly. Therefore, if the negative shock is severe enough, the Fed may not be able to fully offset its effects with monetary policy alone.

The Fed Has Been Unable to Offset the Effects of Negative