CHAPTER ONE 1.0 INTRODUCTION 1.1 BACKGROUND OF THE STUDY

In any economic system, it is the responsibility of the government to make policies that will help to achieve desired macroeconomic goals such as maintaining full employment, achieving equilibrium in the balance of payment, sustaining economic growth and price stability. The problem of Inflation is a global on that has posed some obstacles to economic ‘development in the country over the years. Sequel to these predicaments,, several themes have been put forwards to explain the nature, causes and types of inflation, these theories are monetarist theory of inflation, Keynesian theory, cost push theory, sector-shift theory; structural theory, imported theory, political theory etc.

In conformity with the above theories, many factors have been identified to be responsible for generating inflationary pressures in ‘Nigeria. These factors include money supply, nature of government expenditure, limitation in real output and existence of structural rigidities in the country.

Since the attainment of political independent in 1960 the Nigeria economy has undergone fundamental structural changes over the years. However, it has been observed that; the dramatic structural shift that occurred did not result in any appreciable and sustained economic growth and development. The Nigerian economy experienced an impressive growth for a good part of 1970’s due to the emergence of crude oil production. The happy situation could not be sustained for long time due to gross economic mismanagement, which characterized or manifested at the close of 1970’s and the beginning of 1080’s.

There is no gain saying, the fact that the gross economic mismanagement is the root cause of the difficulties which the economy has been going through since 1981. But the domestic structura1 in balance and price instability that developed over the years are also responsible for Nigeria macroeconomic problems.

1.2 STATEMENT OF THE PROBLEMS

Inflation is a terrible phenomenon whose economic consequence cannot be tolerated by any government irrespective of the political arrangement especially if such economy wishes to be in a position to sustain itself in the nearest future. The persistent increase In general price level these days posses a very serious problem to the development, of the Nigeria economy. It indeed has distortionary effect on savings and investment’ and consequently on the growth of the economy Therefore, the control of inflation as a desirable macro-economic objectives has always been one of the priorities of the Nigerian government beside the objectives maintaining healthy balance of payment position, as well attempting to bridge, to gap of income disparities among individuals in the economy.

The effects of high rate of inflation on the economy is devastating. It has resulted to frequent labour retrenchment and unrest, which have led to further fall in the level of capacity ulization of output from industries as such there has been drastic fall in the standard of living social welfare. Moreover, social vices social unrest, political instability and under development are the short comings of such brash-economic situation. Nevertheless, articulated effects have been made by the government to curb inflationary problem, government through the formulation and implementation of various monetary and fiscal policies. Yet positive result had not been achieved. Thus doubts are being raised about the effective veness of these policy measures. The task in this work is to determines how best to make these polices more effective in achieving the objective of controlling the high rate of inflation in Nigeria today.

1.3 OBJECTIVE OF THE STUDY

The main objective of this study is to examine the efficiency of monetary policy in curbing the problems of inflation in Nigeria and control the rate of inflation is measured as the percentage change in the average price level in Nigeria and to examine the influence of monetary policy measures on Inflation in Nigeria.

 To discuss the causes and consequent of inflation in Nigeria.

 To examine the trend in monetary policy and inflation in Nigeria over the years.

 To empirically investigate the effectiveness of the monetary policy in controlling inflation in Nigeria.

1.4 RESEARCH QUESTIONS

This study is preheated on the following research questions are to enable us collect dependable data on the impact of monetary policy on inflation in Nigeria.

These are the question:

 What are the causes and consequences of inflation in Nigeria?

 What has been the trend of monetary policy and inflation in Nigeria?

 How effective has been the monetary policy in controlling inflation in Nigeria?

1.5 RESEARCH HYPOTHESIS

The hypothesis to be tested in the course of this research work is as follows:

Ho: There is no significant relationship between lending rate and inflation as the, causes and consequence of inflation in Nigeria.

Hi: There is significant relationship between lending rate and inflation as the causes and consequence of inflation in Nigeria.

Ho: There is no significant relationship between money supply and Inflation rate in Nigeria

Hi: There is significant relationship between money supply and inflation rate in Nigeria.

Ho:  That monetary policy instrument has no significant relationship to the inflation rate in Nigeria.

Hi: That monetary policy instrument has a significant relationship to inflation rate in Nigeria.

1.6 SCOPE AND LIMITATION OF THE STUDY

The conduct of the study was constrained by in accessibility to data because some of the institutions where the data are obtainable, workers find it difficult to divulge certain information to researchers for the fear of escalating the secret of the institutions. Moreover, the problem of time and financial cannot be over exaggerated. This constraint to some extent; necessitated the limited scope of the study. It is hoped that despite these constraints the results of this study will be relevant and serve the purpose for which it is originally, intended.

1.7 SIGNIFICANCE OF THE STUDY

Several studies have been carried out on the impact of monetary policy on inflation in the Nigerian macro-economic environment. The study however, will enable us know the changing dimension of tacking inflation. Also this study will it expose the being of inflation and how It ought to be controlled a against the repeated use of fiscal or monetary policy measures in teaching one leaving the other which has not yield desirable result. The people that benefit from the study is the Government and the Public.

1.8 ORGANIZATION OF THE STUDY

It is very important to know and note that in carrying out a research work, the work must be organized ‘accordingly. However, this research work is on the impact of money supply on inflation in Nigeria. This research work has been organized into five chapte