AN ANALYSIS ON THE EFFECTS OF MONEY SUPPLY ON EMPLOYMENT IN NIGERIA ECONOMY

CHAPETR ONE

INTRODUCTION 

1.1        Background of the study

1.2        Statement of problem

1.3        Objective of the study

1.4        Research Hypotheses

1.5        Significance of the study

1.6        Scope and limitation of the study

1.7       Definition of terms

1.8       Organization of the study

CHAPETR TWO

2.0   LITERATURE REVIEW

CHAPETR THREE

3.0        Research methodology

3.1    sources of data collection

3.3        Population of the study

3.4        Sampling and sampling distribution

3.5        Validation of research instrument

3.6        Method of data analysis

CHAPTER FOUR

DATA PRESENTATION AND ANALYSIS AND INTERPRETATION

4.1 Introductions

4.2 Data analysis

CHAPTER FIVE

5.1 Introduction

5.2 Summary

5.3 Conclusion

5.4 Recommendation

Appendix

Abstract

From monetary theories, money supply plays stimulative roles in an economy.  It stimulates employment thereby ameliorating the problems of unemployment, inflation.  It was this knowledge that informed the researcher to undertake an investigative study into the effect of money supply on employment in Nigeria Economy. A thorough literature review was done on the subject matter, especially, as it pertains to Nigeria.  The review showed that money supply has consistently been on the increase but employment has not been rising proportionately with it resulting in persisted inflation and unemployment. Also, an overview of employment situation in Nigeria was taken and the picture, as in the literature review emerged.  Following from this it became necessary to trace the factors inhibiting employment in Nigerian economic system.  Among the factors identified were poor investment climates, infrastructural problems, poor volume of money in circulation etc. In respect of our view of related literature and findings as regards the subject matter of this study, hence the following results were obtained.

 CHAPTER ONE

INTRODUCTION

• Background of the study

Money supply is a very sensitive variable, the size of which determines the pace of any economic activities (Bakare, 2011). Apart from being a powerful instrument of monetary policy, its expansion or contraction dictates the growth in investment and output of any economy (Aslam, 2016). It is therefore the slogan of monetarist school of thought that money matters in an economy. They argued that changes in the amount of money in circulation are the source of other economic changes. They equally argued that increase in money supply in an economy causes an increase in general price level of commodities which brings about inflationary in the country (Uzogu, 2015). They therefore inferred that to reduce inflation, the growth in the money supply needs to be controlled. The monetarists however vary in their belief on expectations. While the extreme monetarists believe that expectations adjust so quickly such that any policy change will immediately be taken into account by people, and there will therefore be no short-term adjustment, the more moderate monetarists accept that there may be an adjustment period and so policy changes may have temporary or short-term effect on the level of output (Uzugu, 2015). Money supply can be defined as the total amount of money within a specific economy available for purchasing goods or services. It is the stock of money at a particular point in time. According to Uduakobong (2014), money supply is the assets which represent immediate purchasing power in the economy and which as a result function as medium of exchange. In Nigeria, narrow money supply (M1) is defined as currency outside bank plus demand deposits of commercial banks plus domestic deposits with central bank less federal government deposits at commercial banks while broad money supply is is defined as narrow money supply plus quasi money (savings and time deposits with commercial banks). In contemporary economies, the central bank is the authority with the mandate of manipulating monetary policy; through monetary policy tools, to achieving desired macroeconomic objectives which includes; the achievement of price stability with respect to both domestic and external prices. According to Ernest (2013), when the CBN changes the level of money supply, it does so through the control of the base money which is made up of currency and coins outside the banking system plus the deposits of banks with the central bank in the form of reserves. For example, if the central bank perceives that there is too much money in circulation and prices are rising (or there is potential pressure for prices to rise), it may reduce money supply by reducing the base money. To reduce the base money, the central bank sells financial securities to banks and the non-bank public so as to reduce the ability of deposit money banks to create new money (Aslam, 2016). The central bank can as well reduce the money supply by also raising the cash reserve deposits that banks are required to hold with the central bank.. A reduction in money supply affects the ability of banks to create new money through giving loans to their customers. In this way, the central bank could be said to be pursuing a contractionary monetary policy. When investors cannot get new loans to expand their investments, it reduces the level of total output in the economy. A reduction in output affects the level of employment and prices as less money is available for purchasing goods. In this way, prices remain stable or fall. The central bank can also pursue an expansionary monetary policy when it reduces the cash reserve ratio and buy securities from the open market through a process known as open market operations (OMO). In this case, the reverse of the analysis above holds. Economists have developed theories explaining the interaction between money supply and the level of output produced in the economy. The classical economists insist that in the short-run, the increase in money supply can stimulate both price level and output while in the long-run output returns to the natural level so that the effect of increase in output is increase in prices (Uduakobong, 2014). The Keynesian on the other hand hold that the effect of increase in money supply is dependent on whether the economy is operating below full employment or not. If the economy is operating below its equilibrium output, an increase in money supply can increase output, but once full employment is attained, increase in money supply will lead one on one to increase in the general price level (Anyanwu and Kalu, 2014). Unemployment rates increase in the short run when monetary policy is used to reduce inflation. This is the short term trade-off between unemployment and inflation. In 1958, economist A. W. Philips published an article showing that when inflation is high, unemployment is low, and vice versa. This relationship, when graphed, came to be known as the Phillips curve. Most inflation is caused by demand-pull inflation, when aggregate demand grows faster than aggregate supply. Consequently, businesses hire more labor to increase supply, thus, reducing the unemployment rate in the short run. But when monetary policy is used to reduce inflation, either by contracting the money supply or by raising interest rates, this reduces aggregate demand, while aggregate supply remains the same. When aggregate demand decreases, prices decrease, but unemployment rises, since aggregate supply is also subsequently reduced.

1.2 STATEMENT OF THE PROBLEM

A study of this sort is necessary owing to certain serious problem confronting the economy of Nigeria.  It has been evident that since the Nigerian Civil War ended in the year 1970.  The problem of money supply and its effect on the area of unemployment have been an economic problem that is disturbing the economic growth and Development of the country. This problem has been of great concern to every Nigerian and the government of the country.  Unemployment is generally an economic, social and political problem which causes economic waste.  Lowers the National Income (GDP and GNP) causes human suffering and reduces the level of development.  As a result of this, many jobless able bodied young men and women roam the streets daily perpetrating social ills such as armed robbery and prostitution. This course of study is investigating on those factors that affect unemployment in the country, through the volume of money in circulation.  And also how those factors affect the economic efficiency or growth and Development of the Nigerian economy

1.3 OBJECTIVE OF THE STUDY

The objectives of the study are;

1. To ascertain the relationship between money supply and employment in Nigeria
2. To ascertain the relationship between money supply and economic growth in Nigeria
3. To ascertain whether money supply boost employment in Nigeria
4. To ascertain whether increasing money supply stimulate employment in the country
5. To ascertain the proper and adequate reduction on the problems of unemployment in Nigerian economy.

1.4 RESEARCH HYPOTHESES

For the successful completion of the study, the following research hypotheses were formulated by the researcher;

H₀:  there is no relationship between money supply and employment in Nigeria

H₁: there is relationship between money supply and employment in Nigeria

 H₀²: there is no proper and adequate reduction on the problems of unemployment in Nigerian economy

H₂: there is proper and adequate reduction on the problems of unemployment in Nigerian economy

1.5 SIGNIFICANCE OF THE STUDY

The study will be of immense help to the government of Nigeria, Business firms, Commercial Banks and members of the public in general.

–        It serves as a tool for government decisions in respect of its monetary policies aim at using money supply to boost employment.

–        The fulfillment of this study will help the Commercial Bank in the allocation of Loans and advances to the productive sector of the economy to encourage employment opportunities.

–        The study will also help the Economists and Accountants to manage the available resources efficiently and to Audit the account of the government.

–        The study will serve as a measure for growth and development of the economy.

1.6 SCOPE AND LIMITATION OF THE STUDY

The scope of the study covers an analysis on the effects of money supply on employment in Nigeria economy. The researcher encounters some constrain which limited the scope of the study;

1. a) AVAILABILITY OF RESEARCH MATERIAL: The research material available to the researcher is insufficient, thereby limiting the study
2. b) TIME: The time frame allocated to the study does not enhance wider coverage as the researcher has to combine other academic activities and examinations with the study.
3. c) Organizational privacy: Limited Access to the selected auditing firm makes it difficult to get all the necessary and required information concerning the activities

1.7 DEFINITION OF TERMS

UNEMPLOYMENT

This is a situation which exists when member of the labour force who is qualified and capable of doing the job but cannot get a benefiting job to do.

UNEMPLOYMENT RATE

This is a measure of the extent of unemployment of the labour force at any particular time.  It is also the proportions of labour force who were available for but did not do any work in the need proceeding the survey period.

MONEY SUPPLY

This means the total amount of money in the economy at any given point in time.

INFLATION

This is the persistence rise in prices of goods and services resulting in diminishing purchasing power of a given nominal sum of money.

INFLATIONARY RATE

This refers to a measure of the extent of inflation of any particular period of time.

ECONOMY

The relationship between production, trade and the supply of money in a particular country

1.8 ORGANIZATION OF THE STUDY

This research work is organized in five chapters, for easy understanding, as follows

Chapter one is concern with the introduction, which consist of the (overview, of the study), historical background, statement of problem, objectives of the study, research hypotheses, significance of the study, scope and limitation of the study, definition of terms and historical background of the study. Chapter two highlights the theoretical framework on which the study is based, thus the review of related literature. Chapter three deals on the research design and methodology adopted in the study. Chapter four concentrate on the data collection and analysis and presentation of finding.  Chapter five gives summary, conclusion, and recommendations made of the study

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