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The Implication of Effectiveness of Demand for Money on Economic Growth

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  • Muritala Taiwo

    () (Fountain University Osogbo, Osun State Nigeria)

Abstract

The demand for money plays a major role in macroeconomic analysis, especially in selecting appropriate policy. This brings in the demand for money function which expresses a mathematical relationship between the quantity of money demanded and its various determinants; interest rate, income, price level, credit availability, frequency of payments etc. Aggregate demand will be affected only in so far as consumption or investment is affected by the change in the interest rate. Against this background, the task in this paper is to empirically analyze and examine the implication of the effectiveness of demand for money on economic growth performance within the Nigerian context between the periods of 1970-2008 through the use of the application of Ordinary Least Square method, the multiple linear regression analysis on E-views 7.0. The paper therefore concludes that money demand has a major effect on the aggregate demand which accounts for the GDP of the economy. This implies that by ensuring efficiency in demand for money, aggregate demand would be achieved and adequately sustained growth that will ensure that inflation is at minimum will be achieved in the economy.

Suggested Citation

  • Muritala Taiwo, 2012. "The Implication of Effectiveness of Demand for Money on Economic Growth," Acta Universitatis Danubius. OEconomica, Danubius University of Galati, issue 1(1), pages 34-48, March.
  • Handle: RePEc:dug:actaec:y:2012:i:1:p:34-48
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    File URL: http://journals.univ-danubius.ro/index.php/oeconomica/article/view/995/1079
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    References listed on IDEAS

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    1. Milton Friedman, 1959. "The Demand for Money: Some Theoretical and Empirical Results," NBER Chapters,in: The Demand for Money: Some Theoretical and Empirical Results, pages 1-29 National Bureau of Economic Research, Inc.
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    3. Hafer, R W & Hein, Scott E, 1984. "Financial Innovations and the Interest Elasticity of Money Demand: Some Historical Evidence: A Note," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 16(2), pages 247-252, May.
    4. Gregory C. Chow, 1966. "On the Long-Run and Short-Run Demand for Money," Journal of Political Economy, University of Chicago Press, vol. 74, pages 111-111.
    5. Stephen M. Goldfeld, 1973. "The Demand for Money Revisited," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 4(3), pages 577-646.
    6. Judd, John P & Scadding, John L, 1982. "The Search for a Stable Money Demand Function: A Survey of the Post-1973 Literature," Journal of Economic Literature, American Economic Association, vol. 20(3), pages 993-1023, September.
    7. Starleaf, Dennis R, 1970. "The Specification of Money Demand-Supply Models Which Involve the Use of Distributed Lags," Journal of Finance, American Finance Association, vol. 25(4), pages 743-760, September.
    8. William J. Baumol, 1952. "The Transactions Demand for Cash: An Inventory Theoretic Approach," The Quarterly Journal of Economics, Oxford University Press, vol. 66(4), pages 545-556.
    9. Stephen M. Goldfeld, 1976. "The Case of the Missing Money," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 7(3), pages 683-740.
    10. John P. Judd & John L. Scadding, 1982. "The search for a stable money demand function: a survey of the post- 1973 literature," Working Papers in Applied Economic Theory 109, Federal Reserve Bank of San Francisco.
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