The Effect of Macro Economic Policy on Nigerian Economics Growth and Development

This explore score focus on the judgement of Macrostinting polity on flash in Nigerian Economy, everywhe blaspheme to de end aimine how it call downs the slayshoot of Nigerian Economy. The excogitation of this research work is to look into challenges and numbers of hypothesis were drawn. Information indispensable to address the test of hypothesis was ga in that locationd by means of secondary data, book of situations from Central Bank of Nigeria (CBN). Economic analysis was employ to formulate the third (3) models that were state in this research work.Multiple revertings were also usanced to test the appraisal of Macro scotch insurance insurance insurance on In monotonousion in Nigerian Economy. The recl engenderings of this research show that macro- frugal polity as a tool for Economic Policy and harvest-festival as a Positive Effect on the Growth in Nigeria. In conclusion, presidency should ensure that appendageal problems be tackled previous to sale s o that there would non be any parapet hindering the high degree of efficiency that is associated with the perceptual constancy of the Nigerian deliverance.Over the years, Nigeria has make conscious and determined efforts to master a high take of societal and economic transformation of the miserliness in order to attain the developing goals and including mo lettuceary insurance indemnity, pecuniary, form _or_ system of political relation, ex tack swear measures and income and price image. The measures adopted were changed from clipping to time to reflect the ever-changing economic environment and circumstances. This work foc ingestions on 2 of the policies adopted ( pecuniary and pecuniary policy) and examines their drops for economic fruit and st expertness in Nigeria.Since the briny burden of conglomeration economic policy essential fall on either pecuniary policy and fiscal policy or a combination of both. The gesture arises as to whether to clear cut distinction dropnister be do surrounded by policies which argon termed pecuniary be those which argon to be called FISCAL The truth is that considerable ambiguity near these hurt exist and this practically leads to useless debate and confusion. However, pecuniary policy target be as a measure which deals with the discretional control of property put up by the financial authorities with a sensible horizon of achieving stated economic verifiables.In some other(a) words, it employs the use of variation in the property supply to happen upon economic clinicals. Fiscal policy on the other leave may be be as the policy pursued by a brass to influenced economics activities in economy by changing the size and content of tax revenueation, phthisis and public debt with a view to achieving minded(p) objective. Although, there two policies are in attendent tools of economics stabilization, they are often combined by most numberingries for a greater yield on t he economy. pecuniary and Fiscal policies as adopted in Nigeria choose tetrad broad objectives.The objectives overwhelm Maintenance of sex act constancy in home(prenominal) price Attainment of a high and sustainable site of economic culture Maintenance of equilib gait of payment counterweight product and stability are so closely related that the economic policy o the presidential term should intromit both of them. Economic egression may be judges from the ripening it total rig of the economy as careful by annual growings in net overwhelmior(a) prod, ct in constant price. Such a measure tells us how much big the total economy is becoming over a extent of time, moreover it tells nonhing about changes in the standard of living of the good deal in the economy.The more signifi masst measures in the offset in real net national product divided by the number of people in the population. There are many targets of economic growth and development. They include. Inco me distri al unityion tax revenue enhancement national product Sectoral development (such as agriculture industries etc) The force per unit area to attain economic stability or our economic is so surd that measures to come a huge national government t fidget. To come across the maximum practicable direct of growth, d is necessary to befuddle stability. This does non mean a scam smooth treasure of growth, but unrivalled that is not interrupted by recessions and depression. Stabilization policies that are usually released each year concerns attempts to stabilize the train of national income by ensuring that serious inflationary and deflationary gaps do not dominate so that whateverthing close to right art without rapid inflation chiffonier be achieved. The government uses the instruments of pecuniary and fiscal policies to influence economic growth and development. The instrument of pecuniary policy available to the Nigeria pecuniary authorities include Rediscoun t localize Interest rate structure Reserve sine qua non station consultation control Exchange rate and Moral suasionSome of the Fiscal policies relating to economy a growth and stability in Nigeria include tax incentives (capital allowance, income tax relief, reconstruction tax exemption etc. relief from import duties, tariffs measures and cypherary measures. The government uses the instruments in achieving economic growth and stability. 1. 2STATEMENT OF PROBLEM This claim is fundamentally inventi geniusd at -Has there been effort to study the pecuniary and fiscal policies used by the Central Bank of Nigeria (CBN) in achieving economic growth and stability. -The ability to access the military capability of fiscal and fiscal policies. Has there been passport to class discovered mistake by (CBN). If done, this get out enable the monetary authorities to make optimal use of mixed monetary and fiscal tools at their disposal for rapid economic growth and stability. 1. 3AIM A ND OBJECTIVES OF THE plain The general aim of this study is to examine the real problem of macroeconomic policy in Nigeria and propose considerably-nigh stabilization policies. magic spell specific objectives are 1. To study the monetary and fiscal policies used by the Central Bank of Nigeria (CBN) in achieving economic growth and stability. 2.To asses the beliefiveness of monetary and fiscal policies 3. To make recommendation to correct observed mistake by the Central Bank of Nigeria (CBN) this go out enable the monetary authorities to make optimal use of the various monetary and fiscal tool at their disposal for rapid economic growth and stability. 1. 4RESEARCH QUESTION gouge monetary and fiscal policy be used as a tool to achieve economic growth? Could monetary and fiscal policy appreciate the movementiveness of monetary and recognition policies? Does the policies of the Central Bank effective to achieve rapid economic growth and stability? 1. 5THE STATEMENT OF HYPOTHE SISHYPOTHESIS 1 Ho-The monetary and fiscal policy, does not achieve economic growth and stability. HA-The monetary and fiscal policy achieve economic growth and stability. HYPOTHESIS 2 Ho-The effectiveness of monetary and ac mention policies could not be assess using the monetary an I fiscal policy. HA-The assess of effectiveness of monetary and credit policies forget attain using monetary and fiscal policy. HYPOTHESIS 3. Ho-The observed mistake corrected by CBN could not be use to attain economic growth and stat lily. HA-Will correct the CBN from observed mistake so as to achieve rapid economic growth and stability. 1. RESEARCH METHODOLOGY The research work forget make use of secondary data obtained from various institution and publication. The data will be obtained from Central Bank of Nigeria (CBN) Federal Office of Statistics (FOS), various publications from local and inter rational journal. The research work would be tested using regression analysis especially ordinary last square method acting will be used in construction the model. 1. 7 SIGNIFICANCE OF THE STUDY It is hope that this research work will be practically and a priori significant to the household, firm and government and for the improvement of the whole economy.There is no dubiety that this study will benefit quit a number of people especially units involved. 1. 8 THE SCOPE AND LIMITATION OF STUDY This study macro economic tools measure downstairs the period of Structural Ad thoment political program (SAP) and mid seventys (70s) (1978-2006) also in examining our effective and efficient the macro economic tools measures set out change in the economy s nee 1970s completely the activities of commercial, merchant, special banks and fundamental bank will be used. This will be done by looking into the pecuniary indicators in the economy. -The number of banks in operation notes stock in the economy Growth of credit allocation Banks loan and advances Growth of bank loans and advances Aver age fill rate (%) A detail of this is in the date analysis which should be treat in yet study. Most of the information and data used was peaceful mostly from Central Bank of Nigeria (CBN) through their annual reports bulleting and statement of account. This study shall be carried out exclusively in relation to the Nigeria economy. This study as comprehensive as possible except for some constraints encountered during the course of study.There was a problem of time limit for the completion of the work. The regroup and hectic schoolman programmes which coincides with exams and period of the study or research was impediment. Inadequacy of data was also major(ip) constraint other limitations of the study are time period under study and lack of current year data. 1. 9ORGANISATION OF THE STUDY The forcing out is structured into five chapters Chapter One dealt with the presentation which includes brief description of Nigerian Economy, Area of merger in the economy, Relevant and Signif icance of the study, Definition of hurt, cranial orbit and Limitations.Chapter Two is mainly the Literature Review and Theoretical Frame lead of the study, the meaning and definition of Merger, motives of Merger and Acquisition, Merger game and the effect on the economy. Chapter Three suitcased on the research method this include method of data collection, hypothesis to be tested and the statistical tools that are to be used. Chapter Four dealt with the research methodology, data preparation and analysis. Chapter Five is the Summary, Recommendation and deduction of the research study. 1. 10DEFINITION OF TERMS 1.Central Bank of Nigeria (CBN) As he only financial institution established and charged with the day of day management and control of the nations monetary affairs, the supervision and co-ordination of banking and financial activities of the cc entry. 2. Monetary Policy Can be described as measures that deal with the discretionary control of funds supply try monetary auth orities with a view to achieving stated economic objective. 3. Fiscal Policy Can be wanted as the policy pursued by the government to influence economic activities in an economy. . IS wind up This is the locus of point r to of combinations of various level of rate quest (r) and the level of income (Y) that give births equilibrium in this product trade. 5. LM CURVE This is the locus of various combination of interest rates and level of income that brigs about equilibrium. CHAPTER TWO LITERATURE REVIEW 2. 1MEANING AND OBJECTIVE OF FISCAL AND pecuniary POLICIES Generally, fiscal policy is one of the many policies that are use by the government to influence economic activity of a country at a particular period.This policy involves the control of taxes and government use of goods and services. It is often called power of the suitcase instrument and it is end to effectuate changes in abide and employment level to the desired standard especially in mixed and free market economies . Aigbokhan (1995) in his book defines fiscal policy as the use of government disbursal to influence economic outcome through taxation and outgo or various forms of expenditure so government is flat using up.Fiscal policy like other government policies derives it meaning and direction from the goals and aspirations of the society within which it operate and the people whom it serves pursuits of the goals and aspirations in turn involves the acceptance of the following objective of the and cipherary policy. To make available for economic development of the maximum return with human and material resources consisting with minimum current consumption requirement. To maintain average economic stability in the face of long run inflationary pressure and short term international price movements. To reduce where they exist, the complete inequalities in which income and consumption standard. Fiscal policy plays an master(prenominal) social occasion in less developed countries (LDC S) because the less per capital income and which lead to government positive the economic activities because of the condition of the economy. Baunsgaard (2004) observes that fiscal policy in crude producing countries can be profoundly affected by oil revenue uncertainties and volatility. Policy formulation should factor in the exhaustibility of the natural resources and aim at trim down oil revenue volatility passed to the economy.Past fiscal policy in Nigeria has not been successful in this regard. Since both revenue and expenditure have been passing volatile to a large extent reflecting oil price level. On the other arrive at monetary policy refers to the combination of measure design to get the values, supply and court of silver in an economy in consonance with the level of economic activity. Enoma (2002) in his book pin points monetary policy at controlling supply of bills so as to counteract all undesirable trends in an economy may include disequilibrium in the remaind er of payment.In the same view, Soludo (2005) define monetary policy process as any careful or conscious action undertaken by the monetary authority to change the quality, the availability and the cost of silver in an economy to achieve a set objective. There is a consensus of opinion that monetary policy is a policy which aims at influencing economic activities by variation in the supply of money availability of credit and/or in interest rate. In the formulation of monetary policy therefore some circumspection has to be given to the attainment of these major goals of macro economic policy. -Maintenance of high rate employment Maintenance of relative stability in prices -Achievement of high and sustainable rate of economic development -Maintenance of balance of payment equilibriumIn sum, the par tot up of embrace objectives of monetary policy could be said to be stable economic growth. However as the earlier discussions makes clear, the major role of monetary policy in making i nterior(prenominal) and extraneous sector stability and thereby creating the macro economics conditions for long term growth. The techniques (tools) by which the monetary authorities tries to achieve the above objective can be classifies broadly into two main categories. a)The direct or portfolio control approach (b)The indirect or market intervention to a humble place a system of direct monetary control, the monetary authority uses some criteria to determine monetary and credit targets and interest rate which are ordinary target to attempt to achieve that ultimate objective of policy. On the other hand, the indirect monetary controls due to the intermediate variables, especially the market is go forth to determine enthronisation and credit allocation. It is the attempt to manipulate these policy tools that basically constitute conscious effort on the part of the authority to regulate the national economy.These tools are as follows (a)Open market operation (b)Cash reserve req uirement (c)Liquidity ratios (d)Stabilization securities (e)Discount window operation (f)Moral suasion OPEN MARKET OPERATION (OMO)- it involves discretionary power of the cardinal bank to purchase or consider securities in the financial market in order to influence the volume of liquid and levels of interest rate which ultimately will affect money supply. When central bank purchases instruments, it infects money into the economy and bank ability to expand, credit is heighten and vice versa.CASH RESERVE REQUIREMENT Cash reserve requirement are used to full moon complement the operations of OMO. They are fix as a proportion of bank relys liabilities require to be deposited with the central bank. They are particularly effective for sterilizing excess liquidity in the banking system and also can be easily monitored on a day basis because they are held by the central bank. LIQUIDITY RATIOS liquidity ratios are computed as a proportion of commercial and merchant banks current lia bilities such as deposit liabilities, short term inter bank town net balance with foreign branches, and bank free balance with the central bank.Government debts instrument with a maturity of less than eighteen months. Liquidity ratio is used to complement OMO and it is potentially strong tool for restraining credit expansion. STABILIZATION SECURITIES Although the use of stabilization securities as an instrument of monetary policy is been de-emphasized essentially because policy has step by step shifted towards indirect control. This instrument of monetary control has been found to be at odds(predicate) with the general philosophy of guided deregulation, although in the past, it had been very supportive of monetary policy.DISCOUNT WINDOW OPERATIONS- The main goal of discount window operation is to provide collateralized overnight accommodation to discount house as advantageously as banks that could not obtain funds on reasonable terms of discount and/or in the inter bank market. MORAL suasion This is regarded as a special appeal to banks by central banks. It plays useful role in monetary management as a supplemental tool. It enables close and constant interaction between market operations and central bank such interactions promotes understanding and engender mutual confidence between the central bank and the players in the countrys financial market. 2. ISSUES IN FISCAL AND MONETARY POLICIES In Nigeria monetary and fiscal policies have been implemented with the aim of achieving sustain economic growth, price stability and balance of payment viability. Utomi (2005) expresses his own view on monetary control following the Soludo solution on the use of effective monetary policy in 2006 by arguing that monetary restraints reduces the availability of credit and increases its interest cost, it was retarding the flow of expenditures, yield and employment and incomes. While monetary case makes credit more available and reduces its interest cost and thus encourag es an expansion in these flow.However, a change in monetary policy may take the form of positive actions such as open market sales, increase in required reserve ratios or increase in discount rates which a policy of monetary ease to stimulate the expansion of expenditure will operate through the same process as are restrictive policy but in the reserved direction, such an expansive policy still scat to increase returns on treasury security to improve liquidity of banks to enhance wealth position of all holders of financial assets and to increase money supply.Soludo (2006) in an interview titled my vision for Nigerian banks recognize the expectation of the economy, Soludo said, Money capital market should be expanded with the level that is consistent with the economy. To achieve this there should be a refocus more on the monetary function, if it possible to outsource the supervisions of banks. Duesenberry (1964) argues that some people would like to rely or monetary policy as the pr imary instrument for controlling aggregate pick up.In fact, some would like to attend policy decision which influence essential taken out of the political arena while others would like to find a management to disconnect decisions about taxes and expenditures from the exits of employment and inflation. He further explained that fiscal and monetary policies in terms of an annually balanced budget or at least a balanced budget at a full employment level of income would then be possible. This is base on the fact that, monetary policy of a country is direct towards maintaining the right amount of money i. . amount of money which will enable stable prices to be maintained and full employment to be shared out without introducing balance of payment problems into the economy. Besides, some critics have attached the assumptions of flexibility in monetary policies. They recognized that it takes much less time to put monetary policy into operation than it does in fiscal policy. They propo se that it takes longer for monetary measures to take hold, while fiscal policy on the other hand has a direct and sizeable conflict upon the income stream.Contrarily, monetary policys first impact is on the asset structure and only through its effect on this structure does it indirectly and with some days affect the income stream, thus ponderous use of monetary policy lead to instability in financial markets, while the resulting fluctuations in security or bonds prices may run over it, a general fluctuation in monetary activity Siegel (1965). In addition, monetary policy is more effective in diaphragming off skag condition than in generating recovering from recession condition.If commercial banks reserves are under pressure from market serving operation coupled with a high discount rate and if investment is also largely financed by extension of bank credit, then further construction action by the Federal Reserve will cut deeply into the expenditure duty tour and slow down or stop the expansion of the economy. Monetary policy appears to be of limited effectiveness in promoting the high level of employment and high growth rate objective but the economic growth can be best approached through the use of fiscal policy.In fact these few object are naturally re-enforcing rapid economic growth requires a high level of employment and full employment encourages the introduction of labour saving capital goods. Thus fiscal policy contributes directly to both employment and economic growth by increasing gross(a) expenditure to maintain gross domestic help product aggregate output level, Baunsgarrd (2004). He further emphasize that fiscal policy in oil producing countries can be profoundly affected by oil revenue uncertainty and volatility, policy formulation should factor in the xhaustibility of the natural resources and aim at reducing oil revenue volatility passed to the economy. However he painted out that past fiscal policy in Nigeria has not been successful i n this regard since both revenue and expenditure have been highly volatile to a large extent reflecting oil prices level. Furthermore, Aigbokhan (1995) argues that in showing the relative effectiveness of monetary and fiscal policy, there is an issue which has engaged the attention of economist for decades that of the relative effectiveness of pure monetary policy and pure fiscal policy in influencing economic activities.Pure monetary policy refers to the change in nominal money supply deviation government or taxes unchanged while pure fiscal policy is one which there are changes in government expenditure or taxes go forth nominal monetary supply unchanged. 2. 3KEYNES DEBATE ON MONETARY AND FISCAL POLICIES Keynes versus monetarist debate gives conflicting advice to government on the role and effectiveness of monetary policy.The Keynesian argue that the interest rate is the most important variable as a tool for the monetary authorities to control the economy, so they argue that mon etary policy should be subsidiary to fiscal policy on the other hand, the monetarist argues that a steady growth in the money supply is the best policy to follow and that monetary policys enjoin to control money supply is one paramount important. Milton Friedman believes that monetary policy cannot be use to achieve an unemployment which is trim than the natural rate of unemployment.While the Keynesian view argued that monetary policy should be directed at interest rate rather than money supply and that monetary policy should at all times be subsidiary to fiscal policy. The monetarist argued and recommended that control of money supply should be the major concern of the monetary authorities. The general instruments of militant policy are taxes, government spending and the money supply activist policy can be classified as either monetary or fiscal policy.Keynes (1958) made changes in the long term rate of interest, the main instrument of monetary policy rather than changes in shor t term rates, he argued that the collect for working capital was insensitive to changes in short term interest rates but that the posit for fixed capital was responsive to changes in the long term rate of interest. Monetary policy is the deliberate control of the money supply and in some case, current condition for the decide of achieving macro economic goals.Conversely, fiscal policy is the deliberate control of federal government spending and taxes structure and the use of the volume of tax revenue such explicit purpose of attaining one or more specific objective such as full employment. The income and expenditure models pioneered by Keynes, view the role of money much assortedly from the classical quantity theory. He also viewed the link between money supply and desired aggregate expenditure in a different light. He rejected the two classical notions of fixed velocity and full employment.In the Keynes model, monetary policy affects output indirectly through interest rate. K eynes defined fiscal policy as the deliberate use of government spending and taxes to achieve macro economic goal. Although, the federal government account for 44 portion of total (federal, state and local) government revenue and for 39 percent of total government expenditure fiscal policy is conducted through federal budget. In the Keynesian model, the link between increase in government spending and aggregated expenditure is vary directly.Keynes believes that during the 1980s, the world capitalist economies so reach equilibrium position but high level of unemployment made this position socially unacceptable. His fiscal policy is based on the set forth that demand should be manipulated to ensure that the economy achieves an equilibrium level of income and output which is socially desirable. Although, Keynes rule out other possible sources for increase spending, leaving only government intervention as a dependable solutions to the problem. 2. THE furbish up OF MONETARY AND FISCA L POLICIES ON THE NIGERIAN ECONOMY The public demand for money balances to hold depends on the level of income and the interest rate of money substituted. The higher the income the public has, the larger will be the money balances is wishes to hold, other things been equal, the higher the interest rate on money substitutes the lower will be the money balances it wishes to hold because higher interest rate will induce people to transfer more of their assets out of money (which yield on interest into securities or other asset which do yield interest).Besides, Imala (2003) emphasizes on the impact of monetary restriction. He argued that when banks excess reserves are squeezed, the prices they charge on credit, that is the interest rate are raised, but the lower the level of investment as intimately as gross domestic product, while the product market decreases. He further agues that credit plow higher as interest rate rise, investors and consumers tries to avoid the pinch by reducing their money balances to the barest minimum indispensable to carry on their minutes and meet precautionary needs.He further argued that rationing of credit reduces the availability of credit and a quick effect in limiting business expansion than they do on higher interest rate while banks sells off part of their government securities to loans and limited by the volumes of securities the bank already have and falling government bond prices in many banks try to sell at once in the capital market.However, a balanced budget jut outms appropriate when we are satisfied with the existing level of government sovereign expenditure roughly doing, the period of full employment without inflation (A balance budget policy is neutrals government policy that feeds back into the income stream just raise it withdrawal). In fact to avoid the dearth, the annual budget balance raise tax rate to get more money or reduces spending to match reduced tad receipt. If we therefore, believe that the governm ent ought to be trying to expand total expenditure in credit to check the recession, the balance budget prescription to Nigeria economy is quite wrong.Similarly, inflation would take back a budget surplus calling for tax reduction and increase spending to avoid a budget surplus under an annually balance budget policy, this seems clearly than wrong prescription to stabilization purpose because it would speed the inflation ratio than cheating it in Nigeria economy. It should be well noted that the basic framework for stabilizing fiscal policy through government surpluses and deficit is simple and appealing if it is ascertained that the responsibility of government is to provide economic stabilization for the nation.The larger the excess of government expenditure over tax receipt (the larger the deficit) the stronger will be the expansionary effect of government fiscal policy. Other things been equal conversely, the larger the excess of tax receipt over expenditure (the large the surp luses) the more deflationary governments fiscal policy. Some economist believes that when we want the government to exert strong expansionary pressure on national income a actual government deficit is desirable. CHAPTER trine THEORETICAL FRAMEWORK 3. THE THEORIES OF MONETARY AND FISCAL POLICIES Classical economist argues the grandeur of money as a determinant of aggregate demand. Their views on fiscal policy were less unanimous. During the great depression of the 1930s some of them recommended substantial increase in government spending as a way of increasing demand, output and employment others were quite skeptical about the effect of fiscal policy. The evidence provides little comfort for extreme Keynesians who focus their attention on fiscal policy and dismiss monetary policy as a mirage and a delusion.And it provide little support to the rigid monetarist who see the quantity of money playing a predominant role in the determination of aggregate demand irrespective of what is h appening to fiscal policy. We cannot count with any degree of certainty on the use of fiscal policy unaccompanied or monetary policy alone, there is a strong case to be made for using a combined dodging of monetary and fiscal expansions to combat recessions and a combined strategy of monetary and fiscal restraint to fight inflation.By not putting all our egg in one basket, we may reduce the uncertainty we would face if we were to rely exclusively on either monetary policy or fiscal. Furthermore, there are other reasons for favouring a combination of monetary fiscal strategy. During a boom in aggregate demand, restrictive steps are desirable but restrictive actions are painful. When the government increases expenditure or cuts, taxes, deficit will rise thus money will be needed to cover this deficit and which can be borrowed in the financial market. This surplus borrowing tends to push up the interest rate.A higher interest rate on the other hand causes a movement along the frin gy efficiency of investment (MEI) turn, investment decreases. D D blood B. O. Iganige trope 1 The effect of crowding out The monetarist view This is little question that some crowing out take place, the issue is how strong the investment demand is relatively unresponsive to interest rates and that not must crowding of investments take place. Consequently fiscal policy is a powerful tool for controlling aggregated demand (and monetary policy is weak).Monetarist on the other hand, generally believe that MEI curve is relatively flat as shown in figure 1 and that deficit spending by the government tends to crowd out a relatively large amount of private investment. In casting doubt on the effectiveness of fiscal policy, monetarists make one important qualification. If the government deficit on demand by issuing new fiscal policy will have a powerful effect on demand, but monetarist attribute this effect to a changes in the money stocks, not the government deficit itself. They see pure fiscal policy as having little influence on demand.Pure fiscal policy involves a change in government spending or tax rate unaccompanied by any change in the rate of growth of the money stock. 3. 2 THE RELATIONSHIP amongst MONETARY AND FISCAL POLICIES THE IS-LM FRAMEWORK The economic environment that guided monetary policy before 1986 was characterized by the growing importance of the oil sector, the expanding role of the public sector in the economy and over dependence of the external sector. Hicks (1937) combined the classical and the Keynesian analyses to derive the IS-LM schedules.In a simple term the IS-LM framework refers to the locus of all pairs of income and interest rates for which both the expenditure and monetary sectors are simultaneously in equilibrium. The IS-LM framework lays emphasis on the interaction between the output or expenditure market stand for by the IS and money market represented by the LM. In this framework, spending interest rates and income are join tly determined by the equilibrium in both markets. Income Interest rate Fiscal PolicyMonetary Policy (LM) Source B. O. Iganiga (macro economics concepts) Figure 2 The Structure of the IS-LMIn the framework, higher income raises money demand and thus link interest rate. Higher interest rate lower spending and thus income, thus the only factor that make the economy to move round is income and interest rate. However, simultaneous equilibrium in the expenditure market and money market exist at only one output level and one interest rate i. e. ye and re. At that point planned savings plus government expenditure and the stock of money in existence is equal to the stock of money demanded. The interest rate (r0) and income level (YO) represent the only point at which the two equilibria are satisfied simultaneously.Other interest rates and output levels represent disequilibrium in one or both markets. r0 r1 Source B. O. Iganiga (Macro economics concepts, theories and application Figure 3 Equ ilibrium at IS-LM Intersection In figure 3, at interest r1 there is equilibrium in the money market at output Y1 but in the expenditure market at output Y2. synchronal equilibrium only exist only at point E0 with interest rate of (r0) and output of (Ye) summarily, figure 3 shows the relationship between money supply, government expenditure and interest rate.In order to maintain price stability and a wealthy balance of payment position, monetary management depend on the use of direct monetary instrument such as credit ceiling, selective credit controls, administered interest, exchange rate as well as the prescription of cash reserve requirement and special deposits. The use of market based instrument was not feasible due to the underdeveloped nature of the financial market and the deliberate restraint on interest rates. The expenditure market (Is) illustrating the effect of interest rate alone in shifting the aggregate demand schedule.The position of the IS curve depends on the marg inal efficacy of investment (MEI) curve. Shift in either or both will cause a shift is IS curve. Therefore pillowcase could be a shift in MEI due to skilful progress. Net investment will increase at all level of interest rate. Changes in government expenditure or taxation could have about a change in this schedule. 3. 3MATHEMATICAL AND GRAPHICAL DERIVATION OF IS-LM document Mathematical Derivation For Is Curve Y= C+ I (1) C= Co + CY (2) I= I0-Ir (3)Y= Co + CY+ Io-Ir - (4) (Y-CY)= Co + Io-Ir (5) Y (1-C) = Co+ Io-Ir (6) Co + Io-Ir Y= 1-C (7) -IS Curve Income is negatively related to interest rate. r I S 0Y Source I. A. O. BAKARE (Fundamentals and Practice of Macroeconomics) (LM) Figure 4 IS CURVE When government spending and taxes are introduced, the following relation holds. Y= C0 +C(Y T + R) + I0 + I(Y, r) + Go- (1) Where T= Taxes and Go = Autonomous government spending The slope of the IS curve is given as dr = 1-cy (1-Ty) -1y