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IMPLICATION
OF INFLATION ON THE NIGERIAN ECONOMY
ABSTRACT
This
research work is an attempt to find out some basic facts about people’s
attitudes toward implication of inflation on the Nigeria economy. The aim of
writing this project is to satisfy a pre-condition for the award of Diploma in
Public Administration. It is also intended to highlight control of inflation on
the Nigeria economy. This can be achieved when Nigeria government control
inflation on the Nigeria economy. The study is not exhaustive owing to the time
and financial constraint encountered in the course of carrying out the research
works. However, the researcher tried to highlight the major aspects of the
scope and objectives of the study in a way it could provide an input to develop
deeper analysis. This work has been grouped into five chapters, beginning with
chapter one which acts as an introduction to the study. The second chapter
reviews related literature, while chapter three deals with the methods of data
collection. With necessary data gathered, the researcher presented and analysed
the data in chapter four. In chapter five, summary was made, conclusion drawn
and recommendations advanced based on the subject matter.
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
One cannot
take about inflation direct reference to money. Money has to do with anything
which by law and custom is commonly accepted in payment for goods and services
or for the settlement of debt. In the modern world, specialization and division
of labour has necessitated the use of an acceptable medium of exchange. Living
is earned by indirectly producing goods and services for other people and
receiving goods and services from others in return. Money is necessary fore
specialization and specialization is the basis of high standard of living.
However, the value of money determines both specialization as well as the
standard of living. Among the characteristics of money are that it must be
relatively scarce and sustain stability of value. The use of money expected to
provide a convenient way of storing wealth. For instance, one can sell goods
today and store the money until when needed. If prices are stable, then one
knows exactly how much command over real goods and services has been stored up
when certain sum of money has been accumulated. If prices change rapidly, then
one has little idea how many goods one will be able to command when previously
accumulated money is spent.
Clearly,
then, rapid fluctuations in general level of prices reduce the usefulness of
money as a store of value. To an economist, then, money is like any other
commodity, though with its special characteristics, its supply and demand must
interact to give what is called equilibrium. A position of equilibrium for any
commodity including money is reached when the quantity demanded is equal to
quantity supplied. Whenever there is a disequilibrium between supply and
demand, an inflationary situation many may arise.
1.2 STATEMENT OF THE PROBLEM
It is
observed that the value of money is affected either positively or negatively
during inflationary period. In inflationary situation there is disequilibrium
between the supply and the demand for money. It is either that a unit of money
can buy less or more quantity of goods. It is then realized that the value of
money does not remain stable for long, the general price level is invariably
either rising or less frequently falling. It is either that the people are
spending at a rate greater or less than the available goods and services. Three
things are now clear; namely.
(a) An increase in the volume of money and
credit,
(b) The increase exceed available goods and
services and
(c) The increase should lead to a
substantial and continuing rise in the general price level. These are all the
situations in the Nigerian economy and hence necessitating the desire to
undergo the study in order to find out the implication of inflation on the
Nigerian economy.
1.3 OBJECTIVE OF THE STUDY
In an
inflationary situation, like Nigeria is currently experiencing, there is
disequilibrium between the supply and demand for money. A situation where a
unit of money can buy less quantity of goods resulting from increase in the
volume of money and credit, the said increase exceeding the available goods and
services as well as leading to a substantial and continuing rise in the general
price level. The objective of the study is therefore to determine the merits
and demerits of an inflation to the Nigerian economy. In addition, to determine
the prospects of improving the issues of inflation in the country. Finally, to
see if the government could improve upon or otherwise the principles of inflation.
1.4 SIGNIFICANCE OF THE STUDY
This study
will be of significance a it will serve as a source of information to the
readers on issues relating to inflation and its implication on the Nigerian
economy.
It will
provide additional insight and serve as a research base upon which future work
could be consulted and finally, it is a requirement for the award of diploma
certificate in Business Management to the researcher upon successful completion
of the course.
1.5 SCOPE OF THE STUDY
The Nigerian
economy is experiencing an inflationary situation. A situation that has to do
with people spending at a rate greater than the available goods and services.
Under this condition, money loses some of its usefulness as a medium of
exchange and store of value in other words, there is a creation of a state of
disequilibrium between aggregate demand and aggregate supply of money thus
necessitating a rise in general price level in the economy. Therefore for the
purpose of this study, only the implication of such situation of inflation as
it affects the Nigeria economy will be concentrated upon.
1.6 STATEMENT OF HYPOTHESIS
This project
will analyse the implication of inflations to the Nigerian economy and in doing
the following research questions will be used. The research questions are
1. Has the issue of inflation improved
the Nigerian economy or otherwise?
2. What are the causes of inflation in
Nigeria?
3. What are the merits or demerits of
inflation in Nigeria? These research questions will be used to test the
following hypothesis;
H1:
Inflation has negative implication on the Nigeria economy.
H2:
Inflations has positive implication on the Nigerian economy.
1.7 LIMITATIONS OF THE STUDY
In the
conduct of research this magnitude, it is obvious that one would face certain
limiting factors. Some of these factors are very apparent that they can be
identified and thus acknowledged. Others are latent and cannot be identified
easily, hence their existences are hereby acknowledged. Some of the constraints
expected in the course of this research exercise would be the period allowed
for the submission of the completed work. It is also obvious that while this
research work is in progress, lectures and other academic engagements are
simultaneously progressing. Also serving as constraint is inadequate funds as
some trips that have to do with the gathering of relevant data will be
curtailed. However, these constraints not withstanding, the research of
expected to be conducted and included diligently and effectively in accordance
with the desired objectives of the study.
1.8 DEFINITION OF TERMS
It is imperative
to understand the precise meaning of some of the terms relating to inflation in
order not to get confused when reading through this research work. The terms
are as follows;
- Inflation: Inflation is an increase in
the existing quantity of money without a corresponding increase in the quantity
of consumer goods and services which are exchanged for money.
- Deflation: This is the opposite of
inflation. It means a general fall in the price level of goods and services in
a country as a result of decrease in the volume of money in circulation.
- Demand for Money: The demand for money is
the amount of money that people want to hold in the form of cash balance or
account deposits.
- Supply for Money: This is the quantity of
money in the economy; that is the currency outside banks plus demand deposit at
bank plus domestic deposit with the central bank. In short, it is the total
stock of money in the economy.
- Inflationary Gap: An inflationary gap is
a situation when the total expenditure is greater than the amount required to
achieve full employment.
- Deflationary Gap: A deflationary gap is
said to be created when total expenditure is less than the amount needed to
achieve full employment.
- Devaluations: Devaluation is a reduction
in the value of a country’s currency vis-à-vis other currencies by a deliberate
decision of the government.
- Hyperinflation: This is a rapid,
uncontrolled inflation that breaks down the entire economic structure of a
nation.
- Recession: This is a difficult time for
the economy of a nation when there is less trade and industrial activity than
usual and as a result more people are out of jobs.
- Implication can be defined as a possible
effect or native or result of an action or decision.
- Effect can be defined as a check, whether
in a negative form or in a positive way.
- Economy could be the relationship between
production, trade and the supply of money in a particular country on region.
- Persistent: Could be defined as that
which continuing for a long period of time without interruption or repeated
frequently in a way that is annoying and cannot be napped.
- Galloping: Is an act of inenasury or
spreading rapidly.
- Control is the power to make decision
about how a country, an area, organization can be controlled.
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