Impact Of Macro Economic Factors On Money Supply In Nigeria

Project and Seminar Material for Economics

Impact Of Macro Economic Factors On Money Supply In Nigeria


Abstract


The research is an appraisal of the impact of macroeconomic factors on money supply in Nigeria. It identify and analyzes macro economic factors, money supply and profers the significance and impact of macro-economic factors on money supply .


Chapter One


1.0 Introduction

The interplay or relationship between various macroeconomic factors is the subject of a great deal of study in the field of macroeconomics. While macroeconomics deals with the economy as a whole, microeconomics is concerned with the study of individual agents such as consumers and businesses and their economic decision-making

The factors in the external environment not subject to the control of a manager generally can be regarded as macro-economic factors or variables.

The corporate managers cannot control the macro economic variables but the government can control them through several policies. Thus, like all experts, the government in order to do a good job of managing the economy, will have to study, analyze and understand the major variables that affect or determine the current behavior of the macro-economy. Examples of the macro-economic variables that affect the economy and firms majorly include exchange rate, foreign direct investment, inflation rate, interest rate, money supply, etc. The management of these variables is usually done through fiscal and monetary policy by the government and her agencies e.g. the Central Bank.


1.1 Background Of The Study

Monetary policy is the regulation adopted by the central bank, which stabilizes the prices and maximizes production and employment of the country. Monetary policy is a regulation of a central bank which controls size and growth rate of the money supply. Monetary policy directly influences the interest rates which in turn has a negative relation with the price level. In the face of inflation the central bank of the country generally resorts to a rise in the cash reserve ratio, repo rate and reverse repo rate. The basic idea is to reduce the money supply in the economy. This would reduce aggregate demand. This reduction would again help reduce the price level.

Monetary policy is adopted with an objective to make the most of production and employment and consequently stabilize the price level of a country. Monetary policy also regulates the interest rate, availability of credit and at the same time promotes the overall economic growth of a country. The research intends to appraise the impact of macroeconomic factors on money supply in Nigeria


1.2 Statement of the Problem

The problem confronting the research is to appraise the impact of macro-economic factor .

It shall provide a detail analysis of the concept of macro-economic factor and money supply and elucidate the impact of various economic factor on money supply.


1.3 Research Question

  1. What constitute macro economic factors?
  2. What is the nature of money supply?
  3. What is the impact of macroeconomic factor on money supply in Nigeria?

1.4 Objective of the Study

  1. To provide a conceptual and theoritical appraisal of macroeconomic factors and money supply
  2. To determine the impact of macroeconomic factors on money supply in Nigeria

1.5 Significance of the Study

The study shall provide a detail analysis of macro-economic factors ,money supply and the impact of macro-economic factors on money supply in Nigeria

It shall also serve as a veritable source of information on issues of macroeconomic Factors and money supply.


1.6 Statement of Hypothesis

  1. H0 Money supply is not significant to the economy of Nigeria
    H1 Money supply is significant to the economy of Nigeria
  2. H0 The level of money supply is low
    H1 The level of money supply is high
  3. H0 The impact of macro-economic factor on money supply is low
    H1 The impact of macro-economic factor on money supply is high

1.7 Scope of the Study

The study focuses on the appraisal of the impact of macroeconomic factor on money supply in Nigeria


1.8 Definition of Terms

Monetary Policy

Monetary policy is the regulation adopted by the central bank, which stabilizes the prices and maximizes production and employment of the country. Monetary policy is a regulation of a central bank which controls size and growth rate of the money supply. Monetary policy directly influences the interest rates which in turn has a negative relation with the price level. In the face of inflation the central bank of the country generally resorts to a rise in the cash reserve ratio, repo rate and reverserepo rate. The basic idea is to reduce the money supply in the economy. This would reduce aggregate demand. This reduction would again help reduce the price level.

Macro Economic Factor

Macro-economic deals with the economy as a whole, microeconomics is concerned with the study of individual agents such as consumers and businesses and their economic decision-making

The factors in the external environment not subject to the control of a manager generally can be regarded as macro-economic factors or variables.

The corporate managers cannot control the macro economic variables but the government can control them through several policies. Thus, like all experts, the government in order to do a good job of managing the economy, will have to study, analyze and understand the major variables that affect or determine the current behavior of the macro-economy. Examples of the macro-economic variables that affect the economy and firms majorly include exchange rate, foreign direct investment, inflation rate, interest rate, money supply, etc. The management of these variables is usually done through fiscal and monetary policy by the government and her agencies e.g. the Central Bank.


Chapter Five


5.0 Summary Conclusion and Recommendation

  • To provide a conceptual and theoretical appraisal of macroeconomic factors and money supply
  • To determine the impact of macroeconomic factors on money supply in Nigeria

Summary of Findings

  1. There is a statistically significantly (0.00)strong relationship(0.984) between the gross domestic product and money supply
  2. There is a negative and a very poor relationship (-.0338) between money supply and inflation rate
  3. There is statistically significantly (0.00) strong relationship (0.792) between the money supply and the exchange rate
  4. The correlation index of 0.991 shows that there is a strong relationship between the dependents variable (money supply) and the rest of the independent variables (EXR, INFL, GDP)

Conclusion and Recommendation

There is a negative and non significant relationship between the money supply and the inflation rate, for a unit change in the inflation rate there will be a 2.769 decrease in the rate of money supply. Money supply grows significantly with a favourable gross domestic product.As exchange rate increases the money supply reduces by significantly by 15.859. The study therefore recommends that It is therefore prudent that in seeking to promote economic growth, Nigeria Banks should be committed to the mission of price stability as well as improving the regulatory and supervisory frameworks to secure a strong financial sector for efficient intermediation.In other to avoid the inflationary impacts government should control the excessive expansion in broad money supply in Nigeria.Government should take appropriate steps to coordinate and harmonize monetary policies in Nigeria in order to facilitate the financial integration process.


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