This is an applied piece of coursework using the IS-PC-MR model we introduced in term 1. The course work will examine the current slide in oil prices and the pessimistic outlook for the China’s growth rate, which will impact globally.
Using the 3 equation model for the UK economy, the IS-PC-MR model, explain the likely “possible reaction” of the Central Bank (CB) in terms of policy response based upon :-
Scenario 1- A Deflationary Shock
January 23/01/2016, The Economist, “Who’s afraid of cheap oil?”.
(see article attached for context).
Scenario 2 – A negative Aggregate Demand shock
January 16/01/2016, The Economist, The yuan and the markets.
(see article attached for context).
You will need to draw one IS-PC-MR diagram for EACH of the scenarios.
For each scenario the answer needs to address UK Central Bank policy and to start the examination assume the conditions for the UK economy are; the target rate of inflation rate is 2% and market base rates are 3% (this denotes point “A” for the examination on the diagrams).
Show how each of the above scenarios will move the economy away from Ye and the starting point “A”.
For both scenarios’ explain how equilibrium in the model would be re-established by the Central Bank.
Finally after addressing both scenarios provide a brief paragraph of recommendation for future policy use by the CB, based on these pessimistic scenarios continuing.
Word count 1500 words. Address each scenario separately and allow approx. 750 for each of the two sections.
Use Arial front 12 for your answer.
Structure your answer as Section 1 and Section 2.
It is acceptable to hand draw diagrams in the hard copy answer to hand in and refer to figure 1/2 in the electronic copy.
Diagrams drawn from sources must carry a clear reference.
A minimum of 4 references should be provided (on either policy or theory aspects) in Harvard form.
An electronic copy must also be loaded into turnitin.
A standard marking guide with grade descriptors for the various classification levels is included for your information.
The marking/feedback template is also included.
Scenario 1 – The Economist, “Who’s afraid of cheap oil?”
Scenario 2 – The Economist, The yuan and the markets.
In general terms, the grades are awarded for assessment on the following basis:
Indicates that no fault can be found with the work other than very minor errors, for example typographical, or perhaps failure to satisfy the most challenging and exacting demands of the assessment.
Indicates a very high level of understanding evidenced by an ability to engage critically and analytically with source material. Likely to exhibit independent lines of argument. Only minor errors or omissions.
Judged to be very good, yet not outstanding. May contain minor errors or omissions. A well developed response showing clear knowledge and the ability to interpret and/or apply that knowledge.
Indicates a sound understanding of basic points and principles but with some failure to express or to apply them properly. Hence the answer is essentially correct, has some errors or omissions, and is not seriously flawed.
Indicates a more limited understanding of basic points and principles, with significant errors and omissions. These errors and omissions, however, do not cast doubt on the basic level of understanding.
Indicates questionable understanding of basic points and principles yet sufficient to show that learning outcomes have been achieved at a rudimentary level.
Indicates an answer that shows only weakly developed elements of understanding. The learning outcomes have been insufficiently realised.
Very little knowledge has been demonstrated and the presentation shows little coherence of material or argument.
Only isolated or no knowledge displayed.
0% will be awarded if a student hands in work 14 or more actual days after the agreed submission date.
Using the 3 equation model for the UK economy, the IS-PC-MR model, explain the likely “possible reaction” of the Central Bank (CB) in terms of policy response based upon the 2 scenarios.
Appropriate research and evaluation.
Theoretical understanding and coherence.
Evidence of critical analysis skills.
Other Assessment Criteria:
Integration of the structure of the students’ essay (introduction, main part and conclusion)
Coherence and flow of the narrative; use of sentences and paragraphs
Use of evidence to support points and accuracy of citation
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