MONETARY AND FISCAL POLICIES AS EFFICIENT TOOLS FOR ECONOMIC STABILITY WITH SPECIFIC TO CENTRAL BANK OF NIGERIA
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MONETARY AND FISCAL POLICIES AS EFFICIENT TOOLS FOR ECONOMIC
STABILITY WITH SPECIFIC TO CENTRAL BANK OF NIGERIA
ABSTRACT
This research wok, treated monetary and fiscal policies as
efficient tolls for economic stability. This research work was done to examine
the monetary and fiscal policies and ascertain how effective they have been in
making the poor conditions of the rural area fair, to ascertain why there
should be poor unemployment in the economy despite the existence and fiscal
policies and to identify the country’s economic problems with a view to offer
lasting solution ot them. The method for sourcing data used in this research
work, was primary and secondary data. Primary data includes: questionnaires
comprising statement drawn from research, questionnaires formulated and oral
interview while secondary data includes the use of textbooks, journals,
internet. Findings and annual reports. The analysis of data was done using
numerical and percentage techniques a d tables were also used to test the
response. The method used in testing the research questions is the use of
statistical method like percentage from the analysis, it revealed that there
are major policies which the government and monetary authorities must endeavour
to maintain and apply appropriately. Useful recommendations are made based on
the findings from the study, that government and monetary authorities should
endeavour to mountain and apply these efficient tools. And when policy measures
are well implemented, there will be great improvement in the economy of the
country.
TABLE OF CONTENTS
Title page
Approval page
Dedication
Acknowledgement
Abstract
Table of contents
CHAPTER ONE:
1.0 Introduction
Background of the study
Statement of problem
Purpose / objective of the study
Research Questions
Significance of the study
Scope of the study
Limitations of the study
Definition of operational terms
CHAPTER TWO:
2.0 Review of Related
Literature
Preamble / Introduction
Definition of monetary policy
Monetary and fiscal policies differentiated
Objectives of monetary policy
Objectives of fiscal policy
Tools / instrument of monetary policy
Theoretical framework tool / instrument of fiscal policy
Monetary and Fiscal policies in the Nigeria Economy
Monetary and Fiscal policies as efficient tools of Economic
Development
CHAPTER THREE:
3.0 Research
Methodology
3.1 Research Design
3.2 Area of the
study
3.3 Population of
the study
3.4 Sample and
sampling techniques
3.5 Instrument for
data collection
3.6 Description of
instruments used
3.7 Validation and
Reliability of Instrument
3.8 Distribution
and Retrieval of the instrument
3.9 Method of data
Analysis
CHAPTER FOUR:
Data presentation and Analysis
CHAPTER FIVE:
5.0 SUMMARY,
CONCLUSIOIN AND RECOMMENDATION
Summary of the Findings
Conclusion
Recommendation
References
Appendix A
Appendix B
Questionnaires
CHAPTER ONE
1.0 INTRODUCTION
1.1 BACKGROUND OF
THE STUDY:
The need for the monetary and fiscal policies had always
existed, though not really recognized in the banking system and in the economy
at large. The increase rate of money circulation in the economy, due to the
rapied growth of commerce and industry has made the monetary authori3es
(central Bank of Nigeria) increasingly Interested in making an effort to have
money supply and credit conditions controlled, so as to maintain a relative
economic stability. And so, the central bank of Nigeria was empowered to
carryout the monetary formulation and execution in consultation with the
federal ministry of finance.
Also, the need to generate revenue for the increase of investment
and the pattern of expenditure for the purpose of influencing economic
activities glares for the formulation of fiscsla policy. The economy has also
witnessed a lot of economic depression, especially the great depression of
1930. as they continued having an unbalanced budget or the budget adding to the
cyclical flunctuations, there was the need for these economic ills to be
corrected and the fissal policy succeeded in correcting these ills of the
economy. The fact was further influenced by the emergence of growth and
stability concept. In othr words, if any economy remains in equilibrium with
resources only partially employed, something must be done to unemployment.
Therefore, to increase this level, employment could be done
in two ways: it could be either directly tackling the problem by employing more
workers or directly tackling it by offering inducement to produce or to
increase instrument. Indeed, the monetary and fiscal policies direct the total
repentance on the economy. Their effectiveness as stabilization or efficient
tools remains an unsettled issue among economists. They have been the efficient
tools of economic stability.
According to John Orji in his book titled “Element of
banking” he listed measures to be applied in using fiscal policy to solve
economic problems or make the economy stable as thus:
Fiscal policy and Recession: When aggregate demand for goods
and services, the level of employment and prices are generally low, the economy
is said to be faced with recession. In order to get the economy out of
recession, the government can apply fiscal policy to solve the problem by
taking the following objectives. Reduction in taxation, increase in government
expenditure, grants to industries and banks.
2 Fiscal Policy
and Inflation: Inflationary pressure is experienced when the aggregate demand
is higher them aggregate supply the price level tend to rise, thereby making
the banks to borrow. The resulting inflation can be controlled by fiscal policy
by employing the following methods: increase in taxation, reduction in
government expenditure, reduction of financial grants to firms etc.
1.2 STATEMENT O
PROBLEMS
There has been instability in the economic system consing****
from flow of money. There has never been sufficient time required for their
policy weapon on such key economic variable’s which is of crucial importance as
an instrument of economic stabilization. There has been situations where there
is either excess or shortage which has often affected unwarranted unbalances or
destabilization in the economy. Such instability or unbalance has never
encouraged economic growth. In other words, monetary and fiscal policies in
most cases, have been retarded which result in unbalance in the economy.
1.3 PURPOSE OF THE
STUDY
In view of the background, the policies aimed at maintaining
economic stability, therefore this work aims specially to achieve the following
objectives:
To examine the monetary and fiscal policies and ascertain how
effective they have been in making poor conditions of the rural areas fairs.
To know why despite the monetary and fiscal policies
formulated for economic development, the rural areas are still under-developed
and under-utilized for much needed economic transformation of the country.
To ascertain whether rural dwellers are included in the
various policies mapped out yearly, by the government vice central banks,
commercial banks and other financial institutions.
To determine why there should still be unemployment in the
economy, despite the existence of monetary and fiscal policies
To ascertain why monetary and fiscal policies as an
instrument of economic stabilization.
To indemnity the country economic problem with a view to
offer lasting solutions to them.
1.4 RESEARCH QUESTION
The research questions include:
Is monetary and fiscal policies really the efficient tools to
economic stability?
Do monetary and fiscal policies contribute in growth of the
country economy
Has there been unbalance in he economy due ot monetary and
fiscal policies being retarded.
Does the absence of monetary and fiscal policies do any harm
to the economy?
Do monetary and fiscal policies contributes positively
towards improving an developing of rural areas.?
RESEARCH HYPOTHESIS
1. Ho: There has been
instability in the economic system arising from.
flow of money and credit condition before the introduction
and fiscal policies.
HA: There has not been instability in the economic system
arising form flow of money and credit condition before the introduction and
fiscal policies.
3. Ho: There has been
unbalance in the economy resulting from m monetary and fiscal policies being
retarded
4. HA: There has not
been unbalance in the economy resulting from m monetary and fiscal policies
being retarded
1.5 SIGNIFICANCE OF
THE STUDY
The There has been unbalance in the economy resulting from m
monetary and fiscal policies being retarded
Cannot be over emphasized in the management of the economy.
This study is of great importance to the society. So it will be deliberating on
the need for a stable economy. Therefore, this study will help;
1. The government for
a better budget planning so that there won’t be any suck case like shortage or
excess in the economy after making the budget.
The financial researchers for better judgement or better
decision making and implementation.
To bring up the need to apply the tools and to apply it
correctly in the control of the economic decision making supply and economic
depreciation.
4. To guide the
central bank of Nigeria and the government on how to control the economy so as
to avoid such cases as decrease of money in circulation (deflation) instead it
will keep a stable economy.
5. To maintain
stability in the external value of the currency using monetary policy.
6. To attain a high,
rapid and sustainable economic growth
7. To maintain
balance of payment equilibrium in the economy
1.6 SCOPE OF THE
STUDY
This research work is limited only to Nigerian economy. The
limitation in the Nigerian economy is with reference to central bank of Nigeria
Awka.
Also the researcher went on extra mile to obtain information
and statistics reasonable enough and for fiscal policies as efficient tool for
economic growth and stability.
1.7 LIMITATION OF
THE STUDY
In carrying out this project work, the research is faced with
certain limitations among which are:
TIME LIMIT: This is as a result of the short semester and
tight academic schedule for lecture free period and weekends.
FINANCE LIMIT: Because of the economic situation of the
country and many expenses which has been met, the researcher is faced with
limited finance, also the high cost of transportation, which is the reason why
one cannot reach all the possible sources of information required for the
project but nevertheless, enough information or data were collected.
1.8 DEFINITION OF OPERATIONAL TERMS
MONETARY POLICY: There are many definition of monetary policy
as there are many writers on the topic. However, for the purpose of this study,
a few definition will surface, for consideration. According to Nwakpa P.N, monetary
policy are the various ways which the federal government and the central bank
seek to influence the supply of credit as well as their price in order to
achieve a stated described economic goal. The desired goal include, to improve
the rural area and maintain healthy economy. According to John Orjih in his
book titled “Elements of banking” Defined Monetary Policy as, any conscious
action undertaken by the monetary authorities to change the volume, quantity,
availability, cost and direction of money and credit in a given economy. He
also went further to define it as the credit control measures adopted by
central banks ot control the supply of money as an instrument for achieving the
objectives of general economic policy. According to Okpala C.M. In his book
titled “Banking in Nigefia issues and concept” defined monetary policy as: A
deliberate effort by the monetary authorities (The central bank) to control the
money supply and credit contributions for the purpose of cachieving certain
broad economic objectives usig the following instrument tools.
Open Market Operation (OMO): This is an activity of buying
and selling of government securities in the open market by the central bank of
Nigeria. When prices rise, and there is the need to control them, the CBN sells
securities to the public. These securities includes: treasury bills, government
bonds, treasury certificates etc.
2. Legal reserve
Ratio: This is the ratio of cash reserves that banks are required to maintain.
It is the percentage of commercial bank deposits (from customers) that the
central bank requires them to set aside either in an account with the central
bank (cash ratio) or in approved securities that is liquid assets.
3. Discount Rate /
Rediscount rate (Bank rate: This is the rate at which the central bank lend
money to commercial banks, discount house, and other financial institutions
(rediscount rate).
4. Liquidity Ratio:
This is a method which compels the banks to spread / diversify their portfolio
of liquid assets holding
5. Moral suasion:
This is a credit control measure applied by the central bank of Nigeria which
involves informal discussions with the official of commercial banks.
6. Directives: This
is a method applied by the central bank in giving instructions about the credit
and banking policies that could be pursued by the financial sector for a given
fiscal period.
7. Fiscal Policy:
This is he means by which a government adjusts it’s spending levels and tax
rates to monitor and influence a nations economy. According to the oxford
Advanced Dictionary, it defined fiscal policy as the creation of tax structure
and the determination of the amount of tax revenue and the direction of
government expenditure for the purpose of attaining a specific objective such
as: greater dependence on our own resources through development of the area.
According to Okpala C.M in his book titled “Budgeting” the
defined fiscal policy as government’s conscious attempt to client the economic
activities towards achieving growth and stability.
According to C.C.N Asuzu (1995), he defined fiscal policy as
that part of government policy concerning the raising of revenue through
taxation and other means and deciding on the level and pattern of expenditure
for the purpose of influencing economic activities.
These economic activities are directed towards the broad
objectives of attaining economic growth and stability.
8. Economic
Growth: Simply means a rise in the per-capital income of a given economy.
9. Economic
stability: Means a situation characterized by stability in he price level and
full employment
10. The Budget:
Fiscal policy is implemented through changes in the budget. The budget is a
financial statement of the sources (revenue) and uses (expenditure) of fund of
the government, which is prepared by the ministry of finance for discussion and
approval.
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