Why can monetary policymakers neutralize demand shocks but not supply shocks?
Why can monetary policymakers neutralize demand shocks but not supply shocks?
Homework Answers
Monetary policy does not aggregate supply because aggregate supply is dependent on wage rate,price level,cost of production,state of technology.Aggregate supply is not dependent on interest rate.
Monetary policy changes interest rate and interest rate affects borrowing and income,and thus monetary policy only affects AD.
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Why can monetary policymakers neutralize demand shocks but not
supply shocks?
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