Using Monetary Policy to Deal with Aggregate Demand Shocks Is

question 181

Essay

Using monetary policy to deal with aggregate demand shocks is much easier in theory than in practice.Describe three major difficulties that a central bank might face.

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Definitions:

Strength

In statistics, often refers to the magnitude of a relationship between two variables.

Direction

The course along which someone or something moves, or is aimed or pointed, often described as vectors in mathematical contexts.

Nonlinear

Not linear; indicating a relationship in which the change in outcome does not correspond to a constant change in the independent variable.

Temperature

A measure of the degree of internal heat of an object or environment, commonly measured in degrees Celsius, Fahrenheit, or Kelvin.