CHAPTER ONE

BACKGROUND OF THE STUDY

Nigeria still presents a clear reflection of the third world economy in which the growing economy has some working machinery, monetary and fiscal policies that are aimed at maintaining a balance in the entire economy so that growth and development, which is the ultimate goal of every economy, is realized.

Generally, monetary policy refers to combination of measures designed to regulate the values supply and cost of money in an economy in consonance with the level of economic activity. Monetary policy refers to the credit control measure adopted by the central bank of a country.Monetary policy according to Olumechere (1988) is a deliberate effort by the monetary authorities to control supply and credit conditions for the purpose of achieving certain broad economic goals Johnson K (1956) define monetary policy as policy employing central bank control of the supply of money as an instrument for achieving the objectives of general economic policy.

According to Salvin (1999) monetary policy is the use of open market operations change in discount rate, change in reserve requirement and other measures available to the monetary authorities to control the rate of growth of money supply. He further noted that the goals of monetary policy are price stability relative full employment and satisfactory rate of economic growth. As Akatu (1993) noted, monetary policy in the Nigeria context encompasses actions of the central bank of Nigeria that affect the availability and cost of commercial and merchant bank reserve balances and thereby the overall monetary and credit condition in the economy. The main objective of such action is to ensure that over time, the long-run needs of the growing economy at stable prices.

The aim of monetary policy are basically to control the inflation, maintain a healthy balance of payment positions for the country in order to safeguard the external value of the national currency and promote an adequate and sustainable level of economic growth and development. The formulation is done by the federal government, mostly announced during budget speeches while the enforcement of the policy is solely the responsibility of the central bank of Nigeria (CBN) yearly.

Economic growth on the order hand according to Kindleberger (1965) means more output, while Friedruan John (1972) defines growth as an expansion of the system in one or more dimensions without a change in its structure, and development as an innovative process leading to the structural transformation of social system.

This economic growth is related to a quantitative sustained increase in the countries per capital output or income accompanied by expansion in its labor force, consumption, capital and volume of trade. An economy on the other hand can be said to be developed when there is a quantitative and qualitative increase

in the amount and quality of goods and services produced in the country. In its widest aspect economic growth and development implies raising the standard of living of the people and reducing inequalities in income distribution.

According to Michael P. Todaro/ Stephen C. Smith (2011) development is the process of improving the quality of all human lives and capabilities by raising people‟s levels of living, self-esteem, and freedom.