Monetary policy

Last updated on
February 17, 2022

Monetary policy refers to the government measures and activities deployed to control the supply of money and the quantity of credit available in an economy. In most cases, the monetary policy of the government an entity be it a country or confederation (i.e EU) is generally driven by the central bank.

Just like fiscal policy, monetary policy influences ****outcomes in an economy. For example, an increase in money supply in an economy that is not proportional to the real output rate in the economy causes inflation. This is simply because there is now more money chasing the same number of goods to purchase thereby pushing manufacturing firms to increase the prices of these goods in classic demand and supply fashion. If the money supply in an economy increases at the same rate as the real output rate, prices for goods and services in the economy will stay the same.

Nigerian Context

Like in many countries, the monetary policy of Nigeria is primarily the responsibility of the central bank - in this case, the Central Bank of Nigeria. Thus, the key objective of the Central Bank of Nigeria is to ensure price stability and it primarily does so by regulating the value, supply, and cost of money in Nigeria’s economy.

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