IMPACT OF MONEY SUPPLY ON THE ECONOMIC GROWTH OF NIGERIA

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THE IMPACT OF MONEY SUPPLY ON THE ECONOMIC GROWTH OF NIGERIA

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY In the critical observation of the recent Nigerian economic position, there has been a great divergence between the rate at which money is supplied and the exact impact it has on the general price level, which results in inflation and deflation on one hand, and the output growth (productivity) on the other hand. Although, it had occurred to our mind that Nigerian monetary policy continues to aim at achieving single digit inflation, a stable Naira, increase in domestic production and a stock of foreign exchange reserves equivalent of at least six months of current imports, the Central Bank of Nigeria (CBN)
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Otherwise, we had found the repeated cases in which people seem to have so little money that they were unable or certainly reluctant to buy everything that could be produced. As a result, price fell, profits vanished, production shrank and unemployment spread. We had also found frequent examples of the opposite situation, where the inflation spiral in which the quality of money outruns the supply of goods and people would lose through being outbid in the market place. The whole mystery is centered on the fact that commercial bank credit is a major factor contributing to the increased quantity of money in circulation in the Nigerian economy. But since the total stock of money determines the economy level to an optional, the monetary policy target is to bring the economy back to a desired optimum, but the extent to which it achieves that, is however another issue. The popular notion is that most monetary policies had failed in Nigeria due to wrong implementation of the policies or due to the uncooperative attitude of the banks before the consolidation of banks in Nigerian economy in January, 2001. Therefore, in discussing the concept of money supply and its impacts, two other issues often come to our mind namely, the state of inflationary pressure and the unemployment rate. According to the monetarist “inflation is everywhere a monetary phenomenon.” Their view was that increase in money supply in an economy,
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