‘Explain the limitations of the high powered money multiplier approach of credit creation. What alternative theories account for these limitations? To what extent are these theories relevant to the current context of monetary policy?’
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Paper instructions:
• 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.
• Evidence of application could be provided;
• What alternative theories account for the limitations of the high-powered money multiplier approach?
• Explain the key points of these theories;