Governments Spending, Real Gross Domestic Product, Money Supply and Inflation In Nigeria

Abstract

This study examined the empirical relationships between government spending, real output, money supply and changes in prices in Nigeria. Secondary data from CBN Statistical Bulletin were used and the data ranged from 1981 to 2014. The stationarity properties of the variables fitted in the model were tested using unit root, cointegration and error-correction tests and the cointegration test confirmed that there was long run relationship. The Ordinary Least Square (OLS) result showed that government expenditure, government revenue, GDP at factor cost and money supply were positively related to inflation and that a 1% change in each of these respective variables would lead to 20.84, 11.44, 1.59 and 11.49 change in inflation. In conclusion, it will be good, if the government should control price movements, but a lasting and impressive solution seems to lie with the growth rate of the economy in terms of increase in real output growth.

Key words: Money Supply, Real GDP. Inflation, Government Spending