The thinking is a policy that merely suppresses the

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fiscal, monetary and credit expansion by the government using the instrumentality of the bank. The thinking is a policy that merely suppresses the effects of its own actions. What this means is that the central bank should first of all manage the money creation process which is at the heart of inflation arising primarily from both the financing of government’s fiscal deficits as well as the growing penchant for loosening banks credit creation capacity. The creation of Figure 1: Trend of Real GDP, Money Supply, Gross Capital Formation, and Inflation Rate
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152 Musibau Adetunji Babatunde & Muhammed Isa Shuaibu money out of thin air can only generate inflation. Once this is resolved within the context of the rule of law, efficient justice system for the protection of private property rights, and eradication (or serious reduction) of public sector corruption, inflation will naturally fall to a desired level and the economy is in turn expected to grow strongly. III. LITERATURE REVIEW AND THEORETICAL FRAMEWORK Increasing concern in recent literature has been skewed towards the integration of monetary theory with economic growth and on the role of money in growth theories. Most research carried out so far in Nigeria have given little consideration to the theoretical underpinning of a growth model that explicitly takes money growth into consideration. At best these studies have ran money demand models and equations for Nigeria based on the quantity theory of money in a bid to ascertain the determinants of inflation, growth, and in other cases money holding. An enormous body of literature, beginning with the work of Tobin (1965) and Sidrauski (1967), assesses the effects of sustained price inflation on the equilibrium growth path in a neoclassical setting. Subsequent studies have tried to model money demand within the growth framework of Solow. According to Kaldor (1959), the determinant of the money rate of return is the rate of growth of income in money terms, which will exceed or fall short of the real rate of growth accordingly as prices are rising or falling. This he argued is possible if a regime of completely stable prices is only consistent with a steadily growing economy when the real rate of growth in the national income is fairly high (that is, when it exceeds 4-6 per cent per annum). Moroney (2002) develops a long-run version of the quantity theory of money growth, real GDP growth, and inflation and finds that the cross-section inflation rates are explained almost entirely by average broad money growth rates. The author asserts that countries experiencing high money growth and inflation had estimated coefficients of money supply (M2) growth strikingly close to one, strongly in conformity with the quantity theory. Comparatively, in countries with relatively low money growth and inflation, the estimated money growth coefficient is only 0.69; hence the quantity theory offers a less complete explanation of inflation.
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