The impact of money supply on economic growth in nigeria (1981-2010)

Thesis Overview

<p> INTRODUCTION<br>1.1 BACKGROUND OF THE STUDY<br>11<br>The relationship between money supply and economic growth has been<br>receiving increasing attention than any subject matter in the field of monetary<br>economics in recent years. Economists differ on the effect of money supply on<br>economic growth. while some agreed that variations in the quantity of money is the<br>most important determinant of economic growth and that countries that devote more<br>time to studying the behavior of aggregate money supply experiences much<br>variations in their economic activities(handle 1997),others are skeptical about the<br>role of money on gross national income (Robinson 1950, 1952).<br>Evidence has shown that since 1980 some relationship exist between the<br>stock of money and economic growth or economic activity in Nigeria. Over the<br>years, Nigeria has been controlling her economy through variations in her stock of<br>money. Consequent upon the effect of the collapse of oil price in 1981 and the<br>balance of payment (BOP) deficit experienced during this period, various methods<br>of stabilization ranging from fiscal to monetary policy were used. Ikhide and<br>Alwoda (1993) concluded that reducing money stock of money through increased<br>interest rates would lower gross national product (GNP). Thus the notion that stock<br>of money varies with economic activities applies to the Nigerian economy. As<br>already explained money supply exerts considerable influence on economic activity<br>in both developed and developing economics. The low level of supply of monetary<br>aggregates in general and money stock in particular had been responsible for the<br>12<br>fundamental failure of many African countries to attain growth and development.<br>Various scholars have laid much of the blame for the failure of monetary policies to<br>translate into economic growth on the government and its agencies as a result of<br>poor implementation and sincerity on the part of policy executors.<br>In discussing the concept of money supply and its impacts, two other issues<br>often come to our mind which is the state of inflationary pressure and the<br>unemployment rate. According to the monetarist, an increase in money supply in an<br>economy causes an increase in general price level of commodities which brings<br>about inflationary in the country (uzougu 1981). Also related to the issue of<br>inflation is the issue of unemployment which is the primary goal of any economy so<br>as to produce as many goods and services as possible while maintaining an<br>acceptable level of price stability, but this major goal will be very difficult to attain<br>at high inflation rate and price instabilities due to excess money supply in the<br>economy. This research work therefore, would review the technicalities involved in<br>the control of money supply in Nigeria. <br></p>