Monetary policy is much less effective at combating a real shock than a demand shock.

Question

Quizplus · Accepted Answer

When there is a real shock, such as a natural disaster, monetary policy may not be effective in stimulating demand and increasing economic activity. This is because real shocks affect the supply side of the economy, causing disruptions in production and supply chains, which cannot be easily remedied by adjusting interest rates or other monetary policy tools. In contrast, a demand shock, such as a recession or drop in consumer spending, can be more effectively addressed through monetary policy measures as they primarily affect the demand side of the economy.

Monetary Policy Is Much Less Effective at Combating a Real