I don't expect you to quickly crank out a novel optimal algorithm. But I like to see that you can think about how to solve problems programmatically. I would like to see you can identify differences in different algorithms and what tradeoffs there are. Considering different approaches that may be faster also shows that you didn't just memorize an algorithm from somewhere but that too took time to actual understand the problem and build a mental model in your head.
I have given people great reviews when they couldn't come up with a working algorthim because the clearly knew how to think like a programmer and considered all of the important things.