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IMPLICATION OF INFLATION ON THE NIGERIAN ECONOMY

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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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