CHAPTER ONEINTRODUCTION1.1 BACKGROUND OF THE STUDY11The relationship between money supply and economic growth has beenreceiving increasing attention than any subject matter in the field of monetaryeconomics in recent years. Economists differ on the effect of money supply oneconomic growth. while some agreed that variations in the quantity of money is themost important determinant of economic growth and that countries that devote moretime to studying the behavior of aggregate money supply experiences muchvariations in their economic activities(handle 1997),others are skeptical about therole of money on gross national income (Robinson 1950, 1952).Evidence has shown that since 1980 some relationship exist between thestock of money and economic growth or economic activity in Nigeria. Over theyears, Nigeria has been controlling her economy through variations in her stock ofmoney. Consequent upon the effect of the collapse of oil price in 1981 and thebalance of payment (BOP) deficit experienced during this period, various methodsof stabilization ranging from fiscal to monetary policy were used. Ikhide andAlwoda (1993) concluded that reducing money stock of money through increasedinterest rates would lower gross national product (GNP). Thus the notion that stockof money varies with economic activities applies to the Nigerian economy. Asalready explained money supply exerts considerable influence on economic activityin both developed and developing economics. The low level of supply of monetaryaggregates in general and money stock in particular had been responsible for the12fundamental failure of many African countries to attain growth and development.Various scholars have laid much of the blame for the failure of monetary policies totranslate into economic growth on the government and its agencies as a result ofpoor implementation and sincerity on the part of policy executors.In discussing the concept of money supply and its impacts, two other issuesoften come to our mind which is the state of inflationary pressure and theunemployment rate. According to the monetarist, an increase in money supply in aneconomy causes an increase in general price level of commodities which bringsabout inflationary in the country (uzougu 1981). Also related to the issue ofinflation is the issue of unemployment which is the primary goal of any economy soas to produce as many goods and services as possible while maintaining anacceptable level of price stability, but this major goal will be very difficult to attainat high inflation rate and price instabilities due to excess money supply in theeconomy. This research work therefore, would review the technicalities involved inthe control of money supply in Nigeria.
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