a)      ‘Explain the limitations of the high-powered money multiplier approach of credit
creation; to what extent does the Flow-of-Funds Approach account for these
limitations?                                                                                                               [60 marks]                    

b)     To what extent are the high-powered money multiplier and the Flow of Funds
approach relevant in the current context of monetary policy in the UK, USA, Japan
and Euro-zone?’                                                                                                        [40 marks]

1.      Key points and perspectives are appropriately framed and  contextualised; 

2.      Key assumptions and limitations are identified and theoretically explored;

3.      Identify data and interpret information through analysis and synthesis with literature;

4.      Conclusions are based on evidence and analysis and appropriate  recommendations

Made.

The word count should be between 1500 – 2000 words, excluding references, footnotes, endnotes and appendices. 2000 words is the absolute maximum upper limit. Violation of the 2000 word limit would be penalised, with the penalty depending on the scale of violation.

The essay counts 20 per cent of the overall Unit grade.

Essay Suggestions

·         The high-powered money multiplier approach to credit creation is introduced and the key assumptions are presented and explained;

·         The advantages and disadvantages of the high powered money multiplier approach are presented and accounted for;

·         Emphasise the limitations of the high-powered money multiplier approach;

·         Explain the key points of the Flow of Funds approach;

·         In what way the Flow of Funds approach accounts for the limitations of the high-powered money multiplier approach?

·         Evidence of application could be provided;

·         To what extent the high-powered money multiplier approach and the alternative approaches are relevant in the current context of monetary policy in the UK, USA, Japan and Euro-zone?

·         Students should draw on empirical evidence to support arguments.

·         Please make use of correct language and appropriate terminology relating to mechanisms. An average of approximately 10 references are expected to, be presented in line with the Harvard referencing system.

http://www.library.mmu.ac.uk/helpsheet/mmuharvard1.php

http:/libguides.mmu.ac.uk/mmuharvard.

·         Diagrams can, be embedded in either, the main body of the essay or as an appendix.

• Lecture Notes and tutorial activities;
• References and related material provided in the Unit Outline;

• Independent research on the application of the high-powered money multiplier, the flow of funds approach and their applications;
• Independent research on Articles in ‘Journals’, the ‘Guardian’, ‘Financial Times, ‘The Economist’ and reports on the UK, USA, Japanese and Euro-zone countries’ Central Banks and other sources [OECD, IMF etc.]

Please note: You can only score up to 50% by reproducing lecture notes and material covered in
tutorials.