THE EFFECTIVENESS OF FISCAL AND MONETARY POLICIES IN CONTROLLING INFLATION
The purpose of this project is to evaluate the Effect of Monetary and Fiscal Policies in checking the causes of Inflationary trends in the Economy. Before the advent of fiscal and monetary policies, inflation has been regarded as a nation’s courage, which tried to parlayed economic activities in the economy. this persistent inflationary increase in the country gave impetus for the launching of these two policies as a good weapon to check the negative tendencies of inflation. This work however considers briefly some of the various instruments used in monetary and fiscal policies to curb these problems. It also examiners the extent of compliance of various income earner (fixed income earners and businessmen) and even the government towards these policies. The research work is divided into five sections. The introduction, the literature review, the research methodology, discussion of findings, summary, conclusion and recommendation. It is therefore, a comprehensive and balance supplement to augment the effort of previous writers in the field. It is valuable to readers and future writers.
1.1 BACKGROUND OF THE STUDY
In general, monetary policy refers to the combination of matures designed to regulate the value, supply and cost of money in all company, in consonance with the level of economic activity. And excess supply of money which will result in an demanded for goods and services will cause rising price and / or a deterioration of the balance of payment position. On the other hand, an inadequate supply of money could in due stagnation in the economy and there by retained growth and development.
Consequently, the central bank or the central monetary authority must attempt to keep the money supply growing at an appropriate rate to ensure sustainable economic growth and to maintain internal and external stability.
The discretionary control of the money stock by the central monetary authority, thus, involves the expansion or contraction of money influencing interest rates to make money influencing interest rates o make money cheaper or more expensive depending on the prevailing economic conditions and the channeling of money to priority sectors.
In a nutshell, the aims of monetary policy are basically to control inflation, maintain a healthy balance of payments position for the country in order to safeguard the external values of the national currency and promote an adequate an sustainable level of economic growth and development. The techniques by which the monetary authority tries to achieve the above objectives can be classified normally its two categories, the direct or portfolio control approach and indirect or market intervention.
In another development fiscal policy has its own measures, which aid in checking the causes of inflation in the economy. Such as the use of fiscal policy as a means of increasing economic activities and the use of fiscal policy as means of reducing economic activities, however, the researcher expatiates more of monetary policy due to its direct relationship towards inflationary tred.
1.2 STATEMENT OF THE PROBLEM
Over the years various policy measure have been formulated and implemented to achieve macro economic performance of the economy. Specially, certain monetary instruments have been employed from time to time to achieve economic growth control inflation and money supply in the economy. The policy instruments appeared to be more direct in nature.
However, these policy measure have not recorded the desired impact therefore the people stems from non performance of these measure. In the course of the study the researcher shall try to examine the following the problems of monitoring and enforcing the desired targets. The problems of harmonization of fiscal and monetary policies are there any possible constraints and prospect in the use of this policies in Nigeria.
1.3 OBJECTIVES OF THE STUDY
The general objectives of the study is to critically examine the instruments and effects of fiscal and monetary policies in controlling inflations.
This objectives can be broken into the following:
Critically examine the instruments and effect of fiscal and monetary policies in Nigeria
To evaluate monetary policy as an instruments for stabilization
To examine the effectiveness of fiscal in checking inflation as well as increasing or reducing economic activities
Examine the instruments of monetary policy in controlling.
1.4 SIGNIFICANT OF THE STUDY
This work is intended to be useful to the following group of people. Students of banking and finance related disciplines who will be interested in further research works of this nature. This work is very important in that the monetary and fiscal management affects crucially, internal and external economic phenomenon such as inflation employment, interest rate, wages and general prices level, moreover, the policy makers, operates in the banking sector and non- banking institutions will also benefit from this write up.
1.5 LIMITATION OF THE STUDY
This work is the study the effect of monetary and fiscal policy in controlling inflation. However, there are certain constraints, which made the research to concentrates, more on monetary policy at expenses of fiscal policy.
Conversely, the researcher was able to carry out the research carefully and hence the above problems did not hitch the success the finding conclusion and recommendations of this study.
1.6 RESEARCH QUESTIONS
Can fiscal policies be used to regulate and control the economy?
Does fiscal policies and balance of payment growth?
Does fiscal polices help in national debt management?
Is fiscal Policy independent of monetary policy?
Does tax rate affect profit of companies?
Can fiscal policy be used to control/ Liquidity in the economy?
Can fiscal policy regulate money supply in the economy?
Is there any correction between tax rate and profitability rate in the economy.
As monetary policy is known to be operative only through the banking sector is fiscal policy narrowed to any particularly sector of the economy?
1.7 SCOPE OF THE STUDY
The fundamental to this work is to assess the effect in our economy. Though the research work was almost hinged on monetary policy, with little emphasis on fiscal policy measure.
In recognition of monetary policy strength and position in our economy, towards inflationary trained, this work was documented. The monetary policy nears used to control inflation, are well studied here is includes the following (OMO) open market operation cash reserve requirement, discount rate mechanism. The study viewed monetary fiscal policy as a basic tools for economy control (price) money supply and stability of all economic activities.
1.8 DEFINITION OF TERMS
Definition of terms here implies that certain technical jargons used herein should be simplified to the perspective readers, especially for those in the different disciplines and the uniformed minds. Some of the jargons affiliated to this study are hereunder given a concise meanings
Broadly defined as the use of government expenditure and taxation for the specific purpose of stabilizing the economy
This is defined as a case when the interest rate falls so low that individuals and business wish to hold any new money created in the banking system as speculative balance
This can define as the policy of the federal government, which is aimed at regulating the quantity, availability and direction of money and credit in the economy;Open
Market Operation (OMO)
This is define as a selling or buying of government securities in the financial markets by the central bank
It is define as the share of government in the profit of a business or as a mandatory levy made by the government of a place (village, town, state or country) on person living or deemed to be living in that place.
This simply means a total rise in the price of goods and services. During inflation the value of purchasing power 9money dropped services continue to escalate, inflation is a period when too much money is chasing few goods d services, with the resultant effect that the value money has been depreciated.
However, in these inflation is simply defined as a situation in which there is a substantial increase 9rise) in the average price of goods and series”. The significance of this definition lies on the words “substantial and sustained”.
Here substantial means reasonable increase the increase should be reasonable so as to generate a concern be reasonable so as to generate a concern. In addition the increases must last for a long periods not just few days or weeks, before such an increment si regarded as inflation t must be reasonable as also sustained for a long period of time. Before the structural adjustment programme era in 1986, inflation has gone up to unifficiencially estimated rate of 50- 60% and for them the state was set for” inflation dance rate”.
THE EFFECTIVENESS OF FISCAL AND MONETARY POLICIES IN CONTROLLING INFLATION