Prices including wages the adjustment in relative

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prices (including wages), the adjustment in relative prices during economic growth could be better achieved by the upward price movement of some individual prices. On the contrary, Adam Smith posited negative impact of inflation on economic growth. Adam smith, provides a for classical growth model. The link between the change in price levels (inflation), and its “tax” effects on profit levels and output were not specifically articulated in classical growth theories. However, the relationship between the two variables is implicitly suggested to be negative, as indicated by the reduction in firms’ profit levels through higher wage costs, (Vikesh and Sabrina, 2004). Friedman further supported this view most especially in a situation in which growth in money supply is higher than the economic growth rate. However, inflation does have real consequences for other macroeconomic variables. Through its impact on capital accumulation, investment and exports, inflation can adversely influences a count ry’s growth rate, (Dornbusch, et al ., 1996). The negative relationship between inflation and growth is important, as it quite often occurs in practice, as ascertained by empirical literature. This phenomenon is regarded as stagflation, when inflation rises as output falls or remains stable. The economy does not move directly to a higher inflation rate, but follows a transitional path where inflation rises then falls. Under this model, there is a short-run trade-off between output and the change in inflation, but no permanent trade-off between output and inflation. For inflation to be held steady at any level, output must equal the natural rate, (Jhingan, 2005). However, this work adopted Quantity theory of money as advanced by Keynes and his contemporaries as its theoretical base and guide, because the theory gives the ground upon which the relationship between money supply, inflation and economic growth can be tested, for both short and long-run analysis in Nigeria. III. Empirical Review Of Relationships Among Money Supply, Inflation,Interest Rate And Economic Growth Many empirical studies have investigated the impact of money supply and inflation on economic growth in Nigeria; some conclude on the positive impact while others revealed a negative impact in their findings; many others argued that there is no any significant relationship among the three variables. For the sake of easy exposition, empirical evidences gathered so far are grouped into two sub-sections. The first sub-section provides empirical evidences on the impact of money supply on economic growth, while the second sub-section dwells on empirical relationship between inflation and economic growth, as well as the the long and short-run empirical evidences on the impact as well as causality, among money supply, inflation, interest rate and economic growth.
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