Monetary Policy

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1.1 Background of the Study
Monetary policy deals with measures taken to regulate the supply of money, the cost and availability of credit as well as the lending and borrowing rates of interest of banks (Ahuja, 2009). Monetary policy is an anti-cyclical policy used to overcome economic depression. The monetary policy is aimed at price stability, stability of exchange rate and overall economic growth. On the other hand, fiscal policy is the use of taxation, public borrowing, and public expenditure of government for purposes of economic stabilization (Jhingan, 2003). Fiscal policy promotes and accelerates the growth of investment; it could also be used to discourage undesirable investments.
(Anyanwu, 1998) opined that fiscal system is the
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In Nigeria, the design and implementation of monetary policy is the responsibility of the central bank of Nigeria and its mandate is stated in CBN Act of 1958. But has the operations of the CBN been effective? If over the past 20 years, the CBN had been granted independence in setting up monetary conditions and had followed a tailor rule consistent with a single digit inflation target, monetary conditions might have been lowered and less volatile than was observed. The efficiency of monetary policy in influencing the level of activities in the real sector of the economy has been subject of debate among economists and policy makers. While the monetarists argue in particular, that changes in money supply is responsible for determining prices, rate of interest and output (agricultural out), others argue that monetary policy is largely irrelevant, this position was put forward by Paul Samuelson in proposition that money matters and money supply do not matter (Ade-agbo & Rasaki,…show more content…
Although, several nations have used these policies to achieve economic growth. This has led to increase rate of inflation, decline in real income, decline in output especially agricultural output, national growth, volatility in revenue and expenditure. The lack of monetary and fiscal discipline among the three tiers of government in Nigeria is also responsible for the slow growth and marginal tax rate and narrow tax base resulting in low tax compliance (Odewunmi, 2012). As a result of these and other factors, macroeconomic in-balance has emerged. A review of these macroeconomic policy shows inflation has accelerated to double digit level, despite the lofty place of fiscal policy of the economy.

Government has the responsibility of preventing calamitous economic depression by proper use of fiscal and monetary policy as well as close regulation of the financial system. Recently, government has become concerned with financing economic policies which boost long-term economic growth, the intent of fiscal policy is essentially to stimulate economic and social development by pursuing a policy stand that ensures a sense of balance between taxation and expenditure and borrowing that is consistent with sustainable growth
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