Question

In: Economics

(a) examine critically the effectiveness of monetary policy instruments since 1999 in Nigeria .(b) The demand...

(a) examine critically the effectiveness of monetary policy instruments since 1999 in Nigeria .(b) The demand for money as expressed by the Keynesian Economists is M^d = f(Y) +f(r). give a detailed exposition of the theory and account for the contribution of Y and r in the relationship

Solutions

Expert Solution

a. The main Aim of central government was to reduce the excess liquidity in the banking system to maintain the economy. By reducing the liquidity there was a direct impact on inflation, financial sector, balance of payment and exchange rate system etc.By the end of 1999 there was mix of broad and narrow money in the economy and there of increase in GPD by 2.7 %. However in the starting of 2000 again there was excess liquidity that lead to increase of broad money in the market. with this the Central Bank of Nigeria started a programme called monetary policy frame work with the objective to achieve to exchange rate stability by minimizing the time inconsistent.Hence again there was mixed economy of broad and narrow money.

The central bank of Nigeria keep adopting monetary policies for stability in growth of economy and in the year 2007 finally the results were somewhere achieved and there was single digit inflation sustained. by adoption of Monetary policy Rate there was drastic change in economy as MPR use to review thrice during the year. there were different Committee formed like liquidity assessment group, MPR committee,Liquidity position etc.

we can conclude that Nigeria Economy is always under pressure to achieve stability as in in years the target was achived however in the year 2016 , 2017 again there were crises.

Hence the broad outlook for the domestic economy in 2019 portends a positive outlook for the domestic economy. Output growth is expected to be driven by fiscal stimulus from increase in oil and non-oil receipts to support the Federal Government’s Economic Recovery and Growth Plan.

money hold for transaction and safeguarding is a function of level of income i.e. with inversely varies with the interest rates and directly with level of income.

Changes in the market interest rates helps to determine speculative demand or money. it is decreasing function of the rate of interest.

the equation clearly shows relation between demand for money in equation with level of income and demand for speculative money

b. Keynes theory was based on role of money i.e. the increase in level of money can bring in increase in the level of output. For eg. when the quantity of money is increased the interest rate falls which will increase the volume of investment. which in turn will increase the output i.e. income and employment. however there was his notion that increase in quantity of money will only increase when full level of employment is reached.

now in the given equation M^d = f(Y) +f(r).

M^d : total demand of money

f(Y) : level of income

f(r) : speculative demand for money

so, Thus the total demand for money is a function of both income and the interest rate. The higher the rate of interest, the lower the speculative demand for money, and vice-versa .


Related Solutions

Explain and critically assess the types and the effectiveness Of the trade policy instruments that states...
Explain and critically assess the types and the effectiveness Of the trade policy instruments that states may utilize in order to achieve strategic interests and their overall impact on trade in a globalized world.
Monetary and fiscal policy instruments are used to affect the aggregate demand (AD) in the economy....
Monetary and fiscal policy instruments are used to affect the aggregate demand (AD) in the economy. What is the difference between contractionary and expansionary monetary policy? What is the difference between contractionary and expansionary fiscal policy? How does each policy affect the AD in the economy? What are the benefits and major problems of the fiscal policy and monetary policy?
Monetary and fiscal policy instruments are used to affect the aggregate demand (AD) in the economy....
Monetary and fiscal policy instruments are used to affect the aggregate demand (AD) in the economy. What is the difference between contractionary and expansionary monetary policy? What is the difference between contractionary and expansionary fiscal policy? How does each policy affect the AD in the economy? What are the benefits and major problems of the fiscal policy and monetary policy?
Explain the effectiveness of monetary and fiscal policy when: The interest elasticity of money demand is...
Explain the effectiveness of monetary and fiscal policy when: The interest elasticity of money demand is high. The interest elasticity of investment is low.
Define monetary policy. List five monetary policy instruments used in the United States.
Define monetary policy. List five monetary policy instruments used in the United States.
Monetary policy in Japan since the early 1990s has had limited effectiveness even though the Bank...
Monetary policy in Japan since the early 1990s has had limited effectiveness even though the Bank of Japan lowered   real interest rates to almost zero, because deflation (a negative rate of inflation) kept nominal interest rates up.   nominal interest rates to almost zero, because deflation (a negative rate of inflation) kept real interest rates up. real interest rates to almost zero, because a positive rate of inflation kept nominal interest rates up. nominal interest rates to almost zero, because a...
Discuss what monetary policy is. Discuss different instruments of monetary policy. Discuss the impact of expansionary...
Discuss what monetary policy is. Discuss different instruments of monetary policy. Discuss the impact of expansionary and contractionary monetary policy, specifically the change in interest rate and credit availability, and the process by which these changes impact business’s decision making process.
Discuss the objectives of monetary policy in Kenya. Discuss how monetary policy instruments have been used...
Discuss the objectives of monetary policy in Kenya. Discuss how monetary policy instruments have been used to achieve monetary policy objectives.            
What policy instruments does the Fed use for the monetary policy? What are the pros and...
What policy instruments does the Fed use for the monetary policy? What are the pros and cons of using expansionary and contractionary monetary policy tools under the following scenarios: depression, recession, inflation, and robust economic growth? Which do you think is more appropriate today?
What are the factors that affect the effectiveness of monetary and fiscal policy?
What are the factors that affect the effectiveness of monetary and fiscal policy?
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT