Suppose the Fed reacts to an economic shock and quickly restores the economy to the Solow growth rate. The shock is most likely
A) an aggregate demand shock.
B) a real shock.
C) a productivity shock.
D) a shock affecting consumer and investor expectations.

Question

Quizplus · Accepted Answer

An aggregate demand shock can be addressed by the Fed through monetary policy, which can quickly restore the economy to its long-term growth rate. Real shocks and productivity shocks are typically more structural and take longer to address.

Suppose the Fed Reacts to an Economic Shock and Quickly