Economics Project Topics

The Impact of Money Supply on Economic Growth in Nigeria

The Impact of Money Supply on Economic Growth in Nigeria

The Impact of Money Supply on Economic Growth in Nigeria

Chapter One


As a result of the problems highlighted above, the researcher desires to achieve the following objectives;

1. To determine the impact of money supply on economic growth in Nigeria.
2. Recommending ways in which money supply could be used more effectively in achieving its intended effects of promoting economic growth in Nigeria.




When it comes to considering the relationship between the state of economic growth and the rate at which money is supplied, it is clear that a great amount of empirical and theoretical work remain to be done. With monetary policies and association of monetary policies and association of monetary and fiscal policies in determining the exact influence of money supply, there is a sizeable literature on which this and further researchers can rely, but little of this appears to have penetrated the mainstream of what literature is required in monetary economics. Although, in case of difficulties in finding much of existing literatures on money supply, policy makers have agreed on that the reason could be the inaccessibility of various channels through which money is supplied. These channels are shared by the federal government fiscal policies via tax cuts and budget spending and the central bank of Nigeria’s monetary options. Yet, having observed that each of the above mentioned policies exert its influence on the quantity of money stock in the economy in the economy, the issue remains the robustness of the surrounding theories. The support of the government had led to the general belief by the policy makers, that central banks does not take full control of the quantity of money supplied to an economy.  However, our literature review is centered on the components and the impacts of monetary policy options in Nigeria economy. The first known attempt to define the concept of money supply in Nigeria economy was done by Roman and Newlyn, both monetarists agreed that the definition of money supply should base on the stage of development of the financial system and the concept of money adopted which serves as a working rule for measurement purposes and guided by the institutional framework of this economy. Meanwhile, the supply of money implies the amount of cash and currencies available in economy insufficiently liquid and spendable forms at any point in time. It is on this notion that money forms a very important instrument which can be manipulated as a money stock variable in order to control money supply in the economy. But the formation of money stock in any modern economy have been found to be more than just a currency as the case may be, but the extent to which the financial system is developed determines the other instruments. This is why the federal government monetary management (FGMM) basically, is to influence macro economic variables and the use of appropriate instruments which vary between developing and developed countries. Money supply can also be defined as the sum of all the money holdings of all the members of the society. This could be either M1 or M2 in Nigeria, M1, M2 18 and M3 in United Kingdom (UK) or M1, M2, M3 and M4 in United States of America (USA). The M1 is a narrow measure of money supply, it focuses on the role of money as a medium of exchange and defines money as “currencies in circulation outside the banks plus demand deposits held in banks” = C+DD. The central bank of Nigeria defines M1 as currencies outside banks plus positively held demand deposits. M2 is a broad measure of money supply. It includes savings and time deposits =C + DD for M1 +SD+TD for M2. The argument for including time and savings deposits of commercial banks is that they can be converted into cash in short notice and used to carry out financial transactions. M+ comprises of M1 and M2 plus deposits held in other financial institutions including finance houses, merchant banks and similar institutions (i.e. C+DD for M1 +SD+TD for M1 + Dᵪ for M3). The arguments supporting M3 is the same as for M2 (i.e. it can be converted into cash within a short notice). M4 comprises of M1, M2, M3 plus investment in government security in government bonds and securities such as treasury bills and certificates, call money e.t.c. The arguments for including the government security is that they are easily cashable which makes them influence the spending habit of its holders in the same way a bank deposit does. Although money has been discussed as M1, M2, M3 and M4 above, they are all not recognized in Nigeria as the CBN only recognized M1 and M2 as the total 19 Nigeria money supply. This is because the country’s financial markets are still not relatively developed. Another type of money is the base money identified as M0. It comprises of all currencies in circulation and all reserves of banks including the central bank.






In this chapter, we described the research procedure for this study. A research methodology is a research process adopted or employed to systematically and scientifically present the results of a study to the research audience viz. a vis, the study beneficiaries.


Research designs are perceived to be an overall strategy adopted by the researcher whereby different components of the study are integrated in a logical manner to effectively address a research problem. In this study, the researcher employed the survey research design. This is due to the nature of the study whereby the opinion and views of people are sampled. According to Singleton & Straits, (2009), Survey research can use quantitative research strategies (e.g., using questionnaires with numerically rated items), qualitative research strategies (e.g., using open-ended questions), or both strategies (i.e., mixed methods). As it is often used to describe and explore human behaviour, surveys are therefore frequently used in social and psychological research.


According to Udoyen (2019), a study population is a group of elements or individuals as the case may be, who share similar characteristics. These similar features can include location, gender, age, sex or specific interest. The emphasis on study population is that it constitutes of individuals or elements that are homogeneous in description.

This study was carried to examine the impact of money supply on economic growth in Nigeria. CBN forms the population of the study.




This chapter presents the analysis of data derived through the questionnaire and key informant interview administered on the respondents in the study area. The analysis and interpretation were derived from the findings of the study. The data analysis depicts the simple frequency and percentage of the respondents as well as interpretation of the information gathered. A total of eighty (80) questionnaires were administered to respondents of which only seventy-seven (77) were returned and validated. This was due to irregular, incomplete and inappropriate responses to some questionnaire. For this study a total of 77 was validated for the analysis.




It is important to ascertain that the objective of this study was to ascertain the impact of money supply on economic growth in Nigeria. In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges of the impact of money supply on economic growth in Nigeria


This study was on the impact of money supply on economic growth in Nigeria. Two objectives were raised which included: To determine the impact of money supply on economic growth in Nigeria and recommending ways in which money supply could be used more effectively in achieving its intended effects of promoting economic growth in Nigeria. A total of 77 responses were received and validated from the enrolled participants where all respondents were drawn from CBN. Hypothesis was tested using Chi-Square statistical tool (SPSS).


It is evident from the result that Real Interest rate and Real Exchange Rate in Nigeria within the period under study failed to influence the real gross domestic product while broad money supply being the only significant regressor influenced the Real Gross Domestic Product within the period under study. It has been identified that the major problem militating against the poor performance of monetary policy instruments in influencing real GDP in Nigeria is time lags involved which now makes any policy employed by the government to take many months to achieve its full effect. In effect to this, the effectiveness of influencing Real GDP in Nigeria maybe promoted by emphasizing on Broad Money Supply instead of on monetary target variables due to the fact that Money Supply is statistically significant


Government should formulate policy that is aimed at raising broad money supply so that by so doing it would encourage capital flight into the country and increase real GDP since its coefficient is quite higher.

Government should intensify its effort in pursuing the policies that are antiinflationary in nature such that its monetary policy objective will not be derailed.

The CBN should also look into the transmission mechanisms of money supply in order to determine its lag effects on economic growth.


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