EFFECT OF INFLATION AND INTEREST RATE ON ECONOMIC GROWTH OF NIGERIA
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EFFECT OF INFLATION AND INTEREST RATE ON ECONOMIC GROWTH OF NIGERIA
ABSTRACT OF THE EFFECT OF INFLATION AND INTEREST RATES ON NIGERIA’S ECONOMIC GROWTH
GDP stands for Gross Domestic Product. Growth is a long-term increase in a country’s ability to provide increasingly diverse economic goods to its population. This increased capacity is thought to be due to technological advancements.
Only through an efficient economic system can the nation’s people and material resources be mobilised between the government and the governed. The Nigerian economy’s development philosophy,
with its objectives focused at standardisation and mobilisation of functions and financial resources, is to stimulate initiative and leadership potential.
The government must continue to create a favourable social and political environment in order to attract foreign investment in various sectors of the Nigerian economy. To that end, the democratisation process will be in full swing to encourage the serious pursuit.
The primary goal of the research is to determine how inflation and interest rates have affected economic growth in Nigeria and to advise and recommend strategies to improve the Nigerian economy. This GDP problem was closely examined.
In conducting the research, secondary and primary data sources were used, with primary data sources being questionnaires and oral interviews, and secondary data sources being test books.
The data was analysed using percentages. The recommendation and conclusion were formed based on the findings.
CHAPTER ONE: THE EFFECTS OF INFLATION AND INTEREST RATES ON NIGERIA’S ECONOMIC GROWTH
BACKGROUND OF THE STUDY
Every country on the planet strives for economic growth and development. This is only achievable if the country has sufficient resources. In poor countries, particularly in Sub-Saharan Africa. The resources required to finance the optimal degree of economic growth and development are few.
Inflation, economic growth, and interest rates are all key and interconnected concepts in macroeconomics. A thorough comprehension of these topics is therefore essential in order to comprehend how inflation and interest
rates have affected growth in Nigeria during the last eleven years. It is from this point of view that the theoretical and empirical link that has been calculated between them is derived.
Inflation is defined as the general level of prices rising rapidly and persistently over a given period of time. This is unacceptable to the general public and policymakers. In the public’s opinion, inflation creates uncertainty about future pricing.
This has an impact on spending, saving, investing, and resource misallocation decisions. It also enables for significant income and asset transfers from savers to debtors. Inflation, according to policymakers, stifles economic growth and development by discouraging investment and savings.
These factors explain why policymakers work so hard to lower inflation and why various authors focus on this topic. Inflation is becoming one of the most difficult problems confronting the Nigerian economy.
Having seen low inflation rates in the years following independence. In 1960, the country saw double digit growth. This was because of the civil war. The next phase of severe inflation occurred from 1974 and 1979, when the wage freeze was lifted as proposed by the Udoji salary review commission.
Reducing strong inflationary pressures is seen as one of Nigeria’s most crucial macroeconomic objectives. In the economic literature, several approaches to explaining the phenomena of inflation have been proposed and tested. As a result, such a concept of inflation has been proposed in the economic literature.
As a result, the concept of inflation has gained popularity, including Demand pull inflation happens when aggregated demand rises faster than aggregated supply.
Cost push inflation occurs when prices rise, and it originates on the supply side of the economy, either through profit push or wages push as a result of trade union action.
In terms of structural inflation, it strives to explain the long-term trend of prices, particularly in industrialised western countries.
There are also monetarists. It explains and compares the inflation rate in various countries to the respective growth rate of the money supply. When a country engages in international trade, inflation can be transmitted from one country to another.
This is known as imported inflation. Inflation has a variety of effects on the economy as a whole, the most important of which are economic growth and interest rates. These three factors are linked. For the purposes of this research study, there are numerous indicators of economic growth.
Finally, the relationship between inflation, interest rates, and economic growth will be thoroughly investigated. It should be mentioned that interest rates are intended to aid in the mobilisation of financial resources
as well as the promotion or encouragement of economic growth and development. Interest rates, on the other hand, have an impact on the level of consumption and are a major tool of monetary policy. The Nigerian central bank regulated and controlled it.
Economic agents and policymakers place a premium on the direction and amount of changes in market interest rates.
Economic growth is defined as an increase in the average annual rate of output produced per person. Interest rates are borrowers’ rental payment for the usage of credit and lenders’ return payment with liquidity.
STATEMENT OF THE PROBLEM
In Nigeria, the impact of inflation and interest rates on economic growth is a major issue. The country’s experience with inflation is no longer the issue,
but the reality that the inflation problem appears to have reached crisis proportions. The rate of inflation is determined by changes in interest rates. The nominal interest rate is determined by the actual interest rate and the expectation of inflation.
Since our independence, we have suffered from inflation and interest rates until the central bank implemented their new system, which abolished all control over interest rates and allowed banks to choose their own rates.
OBJECTIVES OF THE STUDY
The study’s broad aims are primarily.
To critically examine how inflation and interest rates have affected Nigeria’s economic progress.
to determine the key determinant of inflation in the country from 1972 to 2004.
To investigate the economic forces that influence the economy and its consequences.
To suggest and recommend methods of assisting the Nigerian economy.
To estimate the impact of inflation and interest rates on employment levels.
To examine how changes in inflation and interest rates affect the economy.
RESEARCH QUESTIONS
1. What are the sources of the Nigerian economy’s inflation and interest rate problems?
2. What have been the primary determinants of inflation in the country between 1992 and 2004?
3. How do you analyse the forces influencing the economy and their implications?
4. How might imploring the economy be suggested and recommended?
5. What is the current situation of the inflation and interest rate problem in terms of employment?
6. Is the impact of fluctuating inflation and interest rates impacting the economy?
RESEARCH THEORY
The hypothesis is written as follows for the aim of analysing or objectively analysing to attain the above goal:
1a. Ho: The rate of inflation has no substantial impact on Nigeria’s GDP or economic growth.
B. Hello: The rate of inflation has a substantial impact on Nigeria’s GDP and economic growth.
2a Ho: Interest rates have no substantial impact on Nigeria’s GDP or economic growth.
B. Hi; Interest rates have a substantial impact on Nigeria’s GDP and economic growth.
SIGNIFICANCE OF THE STUDY
Over the years, the nature of the Nigerian economy has made it intolerable for the people who live there. The Nigerian economy has an unbalance of payments that could be easily financed for local product,
making external borrowing unavoidable. The negative impact of external debt and economic growth issues on the Nigerian economy is getting unbearable.
As a result, the study will be useful in educating Nigerians by revealing that one of the key reasons why the Nigerian economy is growing slowly may be traced back to inflation and interest rate issues.
It should be underlined that the goal is to help mobilise financial resources to promote economic growth and development rather than going outside the country to borrow funds.
Furthermore, this research will assist the Nigerian government, particularly the current government, in understanding the insufficient supply of locally produced and imported commodities, the high price of imported commodities,
the high price of imported goods resulting from increases in foreign prices being currency instability, thereby affecting our economy and its growth.
The next step should be fellow in order to reduce the overall outstanding inflectional and interest rate problem because it is apparent that Nigeria’s economy is rising at an alarming rate each year.
It should be noted that this study is applicable not only to Nigeria, but to practically all countries dealing with economic problems, owing to several shared characteristics.
SCOPE OF THE STUDY
SCOPE- the study will look at the role of inflation and interest rates in the Nigerian economy. The key factors that have influenced their management include investment and savings, as well as the many changes that have occurred in their organisation since the beginning of financial sector reforms.
It also provides some insight into Nigeria’s inflationary challenges, discusses the primary elements underlying them, and the steps made to mitigate the impact of inflationary pressures.
DEFINITION OF TERMS
A. INFLATION: Inflation is defined as a sustained rise in general prices over an extended period of time.
B. INTEREST RATE: This is the cost of borrowing money.
C. ECONOMIC GROWTH: Is a long-term increase in a country’s ability to provide increasingly diverse economic goods to its population. This increasing capacity is based on advances in technology, institutional and ideological changes, and it relates to a growth in real output or real per capacity output of the economy.
D. ECONOMIC DEVELOPMENT: A multifaceted process in which the entire economic and social system is reorganised and reoriented.
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