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Impact of Money Supply (M2) On GDP of Pakistan: Impactofmoneysupplym2Ongdpofpakistan
Impact of Money Supply (M2) On GDP of Pakistan: Impactofmoneysupplym2Ongdpofpakistan
Finance
Volume 13 Issue 6 Version 1.0 Year 2013
Type: Double Blind Peer Reviewed International Research Journal
Publisher: Global Journals Inc. (USA)
Online ISSN: 2249-4588 & Print ISSN: 0975-5853
ImpactofMoneySupplyM2onGDPofPakistan
© 2013. Iqra Ihsan & Saleem Anjum. This is a research/review paper, distributed under the terms of the Creative Commons
Attribution-Noncommercial 3.0 Unported License http://creativecommons.org/licenses/by-nc/3.0/), permitting all non-commercial
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Impact of Money Supply (M2) on GDP of
Pakistan
Iqra Ihsan Į & Saleem Anjum ı
Abstract - The main role of money supply (M2) on GDP of There are different measurements of money
Pakistan is described. The excessive money supply (M2) by supply. All of them are widely used and the exact
SBP (State Bank of Pakistan) to run the country entails to high
classifications depend on the country. M0 and M1, also
rate of inflation if the indicators i.e. CPI, interest rate are not
Year 2013
controlled within the prescribed limits. The more the money called narrow money, normally include coins and notes
supply will be in the economy, the greater the inflation rate in circulation and other money equivalents that are
would be. No sooner, the indicators improves production in all easily convertible into cash. M2 includes M1 plus short-
sectors i.e. industry, agriculture, education, health and basic term time deposits in banks and 24-hour money market
infrastructures increases, money supply would be lesser, funds.
inflation decreases and GDP increases accordingly. We have It can be described direct relation between
taken into consideration the data for 12 years (2000-2011) and money supply growths in long term price inflation. This
analyzed this data by using the Regression Model. In this
Global Journal of Management and Business Research ( C ) Volume XIII Issue VI Version I
is necessary for fast increase in the amount of money in
model we have taken three independent variables that are
the economy.
inflation rate, interest rate and CPI because money supply is
affected both one of them and one dependent variable that is a) Why Money Supply is Important?
GDP. The CPI and interest rate have a significant impact on Since money used normally in all the economic
GDP and inflation rate has insignificant impact on GDP. transactions, it has powerful effect on economic activity.
Keywords : money supply, inflation, GDP, interest rate, Thus increase in supply of money will result in decrease
CPI. in interest rates and increase in investment. In this way
I. Introduction when extra money is spread in the society the
consumers feel richer and will spend more. Industries
M
oney supply (M2) plays a significant role o acknowledge enhancing by ordering more raw materials
GDP. We can define monetary policy for and increase their production. When the business will
ascertaining the availability of money, supply of flourish, the demand of labor and capital goods will be
money and targeting the rate of interest for the increased. Stock market prices increase and firms issue
promotion of economic growth in Pakistan.
kistan. more equity and debt. In this perspective, money supply
Pakistan, being developingpin country, usually continuous to expand. Prices begin to rise, if output
faces unemployment and unstable prices in its monetary growth meets capacity limits. People began to expect
policy, which is the management of expectations. inflation, lenders demand higher interest rates consumer
Usually monetary policy consists on the relationship purchasing power decreases over the life of their loans.
between the rate of interest in an economy that is the
price of money can be borrowed and total supply of b) Inflation Became Worse in Pakistan’s History
money. Both these are controlled by different tools to Pakistan encounter relative price establishment
influence outcomes of inflation, economic growth, during the 1960s. Customary, prices rose at an average
unemployment, interest rate and exchange rates with rate of 3% per annum. Contradictory, during the decade
other currencies. of the 70s the price level rose at an average annual rate
These main factors are set by the State Bank of of 11.7%. The inflationary position was even worse
Pakistan for vigilant control. This paper will focus on the during (1973-1974) (22.8%) and (1974-1975) (25.3%)
significance of money supply (M2) on GDP. Undoub- mainly because of the declining share of commodity
tedly GDP is affected by this money supply. producing sector in GDP and the high growth of money
Money supply is the total amount of monetary supply.
assets available in an economy at a specific time. This After (2004-2005), inflation has arisen during
can further be elaborated by including currency in (2007-2008) it had reached memorandum levels. The
circulations and demand deposits of financial insti- basic inflationary tendency has been recognized in the
domain of food inflation, an expected outcome of
tutions. Money supply (M2) in Pakistan is recorded,
expedition in world commodity prices as well as
reported, analyzed and published by the State Bank of
flourishes oil prices. The year (2007-2008) has con-
Pakistan.
cluded with 12% overall CPI-based inflation. It is a well
Authors Į ı : Lahore Business School, University of Lahore, Pakistan. famous fact that food inflation has emerged as a major
E-mails : [email protected], [email protected] source of involvement for policy makers around the
world, including Pakistan. Food inflation in Pakistan has growth, Pakistan accomplished in raising foreign exch-
been nourished by a combination of domestic demand ange reserves to a satisfactory position and comprises
driven factors (rising per capita income), local supply the country's exchange rate; rebuild investors' confi-
shortage and global trends in the prices of intrinsic dence and most considerably taking Pakistan out of the
material. IMF Program.
It may be noted that there are only four basic The above clues were confessed by the current
food items such as wheat flour, rice, fresh milk and PPP government in a Memorandum of Economic and
vegetable ghee which subsidize 42.5 % to the overall Financial Policies (MEFP) for (2008/2009-2009/2010),
increase in general price level. while signing agreement with the IMF on November 20,
c) Pakistan GDP History 2008. The document clearly admitted that "Pakistan's
Pakistan's tolerable economic growth rate since economy perceive a major economic revolution in the
independence has been higher than the average growth last decade. The country's real GDP increased from $60
Year 2013
rate of the world economy during the same period. billion to $170 billion with per capita income rising from
Average annual real GDP growth rates were 6.8% in the under $500 to over $1000 during (2000-2007)". It
1960s, 4.8% in the 1970s, and 6.5% in the 1980s. additional acknowledged that "the volume of inter-
Average annual growth fell to 4.6% in the 1990s with national enterprise increased from $20 billion to nearly
consequentially lower growth in the second half of that $60 billion. The improved
p macroeconomic execution
decade. enabled Pakistan to again enter the international capital
Pakistani economy grew at adequately impo- markets in the mid of 2000s. Huge capital inflows
Global Journal of Management and Business Research ( C ) Volume XIII Issue VI Version I
sing rate of 6 percent per year through the first four financed the current account deficit and furnish to an
decades of the nation's existence. In spite of rapid increase in gross official reserves to $14.3 billion at the
population growth during this period, per capita end of the June 2007. Floating in output growth, low
incomes doubled, inflation continuously low and poverty inflation and the government's social policies provide a
diminished from 46% down to 18% by late 1980s( Dr. reduction in poverty and progression in many social
Ishrat Husain). In the 1990s, economic growth dropped indicators". (MEFP, November 20, 2008)
between 3% and 4%, poverty rose to 33%, inflation wass The Zardari-Gilani government transmitted
in double digits and the foreign debt amounted to nearly somewhat satisfactory economy on March 31, 2008. It
the entire GDP of Pakistan as the governments of transmitted foreign exchange reserves of $13.3 billion,
Benazir Bhutto (PPP) and Nawaz Sharif (PML) played exchange rate at Rs62.76 per US dollar, the KSE index
musical chairs. Before Sharif was ejecting in 1999, the at 15,125 5 with market capitalization at $74 billion,
two parties had supervised over a decade of corruptionion inflation at 20.6 per cent and the country's debt
and mismanagement. In 1999 Pakistan’s total public lic responsibility on a declining path. The government itself
debt as percentage of GDP was the highest in overall a
approved in the same document that "the macro-
South Asia 99.3 percent of its GDP and 629 percent of economic situation depreciate significantly in (2007-
its gross revenue. Internal Debt of Pakistan in 1999 was 2008) and the first four months of (2008-2009) unsettled
45.6 per cent of GDP and 289.1 per cent of its gross to adverse security developments, large exogenous
revenue. price disturbance (oil and food), global financial
The adjustment of the money supply and agitation and policy stagnation during the political
interest rates by the State Bank of Pakistan, in order to modulation to the new government"(MEFP, November
control inflation and stabilize currency are confined. 20, 2008)
Monetary policy is one of the two ways
ay the government A crisis of assurance intensified as investors
can influence the economy. By encountering the and development partners started to walk away. The
effective cost of money, the Federal Bureau of Statistics stock market decline, capital flight set in, foreign
can affect the amount of money that is spent by exchange reserves collapse and the Pakistani rupee lost
consumers and businesses. one third of its value. In summary Pakistan's macro-
After a comparatively peaceful but economically economic burden had grown unacceptable. It had no
dormant decade of the 1990s, the year 1999 brought a any other option but to return to the IMF for a bailout
bloodless revolution led by General Pervez Musharraf, package.
introduced a growth cycle that led to more than While the country was moving rapidly towards
doubling of the national GDP, and expressive expansion the IMF, the Ministry of Finance had prepared the plan
in Pakistan's urban middel class. to bring $4 billion by June 30, 2008 through four
d) Per Capita PPP GDP transactions. These transactions were canceled on April
Pakistan became one of the four fastest 20, 2008. This cancellation spurs the balance of pay-
growing economies in the Asian domain during (2000- ment crisis and the rest became history.
2007) with its growth averaging 7.0 per cent per year for The economy carries on remaining in intensive
most of this period. As a result of substantial economic care unit and is almost breathing thanks to the injection
of funds from the IMF, World Bank and Asian Deve- h) Literature Review
lopment Bank. i. Bigyan Shrestha
e) Interest Rate Implications The Price, GDP, M1 and M2 all are stagnant at
The function of monetary policy is to bring first difference level. GDP and Price are unified with both
development and efficiency in the financial sector, of M1 and M2. M1 and M2 both are important variables
developing a leading environment for economic growth. for attention. As per the monetarist anticipation, the
The SBP followed a tight monetary policy in past few inflation is purely a monetary experience. But in Nepal it
years. There are different objectives of monetary policy is found that, for the analyzed data for 1980-2009, the
that are inflation, government borrowing and interest price is not affected by money supply, but the money
rate. In Pakistan, rising inflation and interest rate are the supply is caused by price level. Granger causality tests
most common circumstances. The rising in lending do not prescribe a clear cut independent causality
rates causes harm for economy and consumer. It is a flowing from money to prices. This may have been the
Year 2013
fact that high lending rates are regularly joined with high effect of configuration of monetary policy that is based
inflation. upon the current price level and setting the targets but
¾ Decrease in Interest Rates not proficient to fulfill the monetary function.
The decrease in interest rate is the best for the ii. Ryan Barnes
economic conditions. When consumer can sustain to The Federal Reserve presented data on the
borrow funds, they do not have to pay high interest rates levels of M1 and M2 on weekly basis and has been
on borrowed funds. There are some benefits from low collecting data on the money supply since the 1950s. In
Global Journal of Management and Business Research ( C ) Volume XIII Issue VI Version I
interest rate that includes house loans, personal loans, the less financially tangled world that consist then, the
credit cards, auto loans and increase in investment supply of money showed a very strong relationship to
in stock market. Interest rate basically controls the how much money was spent and it was therefore
economic growth. When the economy grows rapidly studied by economists for suggestions to the economic
then it will involve in inflation. Price level increases and growth. Constitution passed in 1978 that ordered the
no one can afford the changes in real interest rate. Low Federal Reserve to set annual targets for money supply
interest rate will provide corporate level contingency to o growth. At the time, there was a still high relationship
take new capital investment spending and increases the between money supply growth and primarily economic
firm faith by make heavy investment in growing sector or growth as measured by gross domestic product (GDP).
and producing heavy revenue. lin Peter
iii. Sellin,
¾ Increase in Interest Rates The Keynesian economists indicate that change
The increase in interest rate will increase the in the money supply will directly affect on the stock
cost of resources. The increase in interest rate is just like prices only if the change in the money supply develop
pric
opening the door of increasing non performing loans. probability about future monetary policy. According to
these economists, positive money supply encounter that
f) Problem of the Study
will lead the people to forecast the tightening monetary
Is this menace of inflation badly affecting the
policy in the future. They instruct for funds in prediction
economy of Pakistan? Whyy inflation is increased day by
of tightening of money supply in the future which will
day and what are its adverse effects on economy? And
push up the current rate of interest. (1).
is this inflation controllable and how?
iv. Fernando Alvarez, Robert E. Lucas
g) Objective of the Study The outstanding principle of this harmony are
The significant objective of money supply is that the mechanisms of monetary policy ought to be the
taken ‘inflation’. The excess money supply by SBP in the short term interest rate that policy should be focal point
country would entail to the rising of prices of basic on the control of inflation and that inflation can be
commodities. Purchase on high prices by the public reduced by increasing short term interest rates. These
would demand more supply by the industry. To produce recommendations are taken as given would seem to
more and to increase the productivity entrepreneurs involve the exclusion of the quantity theory of money, the
would get required money on high interest rates. The class of theories that intimate that inflation rates can be
more the growth of products in the markets would be, controlled by controlling the rate of growth of the money
the decreasing in prices would result in minimizing the supply. Such a rejection is a difficult step to take
inflation rate. The pro-rata decrease in inflation would because the regular demonstration that continue linking
tantamount to increase in GDP rate. The study is based with monetary policy, inflation and interest rates and
on following variables. there is an excessive amount that consists almost
o Interest rate perfectly of evidence that increases in average rates of
o Consumer price index (CPI) money growth that are correlated with equal increases in
o Inflation rate average inflation rates and in interest rates. According
o GDP the quantity theory, rapid money growth is distinguished
characteristic of monetary contentment and it is also o The study period is from 2000-2011
correlated with high interest rates as well as with high o The data is consisting of last 12 years of inflation,
inflations. (2) interest rate, CPI and GDP.
v. Min II. Methodology
Even if economists extensively accept that
inflation has a negative effect on economic growth, in a) Data Collection Technique
this study the researchers did not disclose this affect in In this research, secondary data has been
data from the 1950s and the 1960s. Therefore, a popular used. Secondary data is collected from the State bank
view in the 1960s was that the effect of inflation of Pakistan and federal bureau statistics. In which there
on growth was not exceptionally important. This view are four variables GDP, CPI, inflation and interest rate.
flooded until the 1970s when many countries mainly in
b) Sample Size
Latin Americans practiced hyperinflation. Various studies
The study period consist of 12 years from
Year 2013
d) Characteristics of Variables
overtake a stipulate point; it affects the growth rate
unfortunately. (3) i. Dependent Variable
GDP is the dependent variable. GDP is the total
vi. Liang, Fang and Huang, Weiya
market value of all finall goods
go and services which
Federal Reserve has been playing a funda-
produced in a country in a given year are equal to total
mental role in affecting the US economy classification
consumer, investment and government spending, plus
through carry out monetary policies and targeting a
the value of exports, minus the value of imports.
sustain economy system, consciousness of economistss
is interested to follow the fed’s policy management and ii. IIndependent Variable
association afterwards. The three main tools of the Fed In
a. Interest Rate
in motivating the market are open market transaction, The amount charged, formulate as a
discount rate and resources fulfillments. The importance percentage of principal, by a lender to a borrower for the
of the situation of Fed cannot be over highlight because use of assets.
of its not able to replace the responsibility for the
b. CPI
management of accumulate demand by total spending
It measures the level of prices in the economy. It
as well as inflation. (4)
comprise transport, food, medical, education, fuel,
vii. Feldstein, M. and Stock, J. H house rent etc.
Feldstein and Stock (1994) deliberated the
probability of using M2 to target the quarterly rate of c. Inflation Rate
growth of nominal GDP in their paper in 1994. The study The rate at which the ordinary level of prices for
manifested that the Federal Reserve could perhaps goods and services is rising and afterwards, purchasing
make use of M2 that diminishes both the long-term power is falling.
average inflation rate and the fluctuation of annual GDP e) Analytical Results
growth rate. (5) The data were analyzed by using Regression
viii. Fair R Model to find out the relationship between inflation rate,
Fair (2001) likely the constructive rules that interest rate and CPI with the GDP of Pakistan.
relating to interest rate and a set of economic variables (Table no: 1) The value of mean show the
and penetrate out that there was an organic change of average values, standard deviation shows the variability
policy convention of Fed between 1979 and 1982. By in the values and N represents number of years in the
including the organic change component, the scriber model.
was able to carry out stable coefficient projections. The
laws formulated from the regression explained interest Table no: 1
rate into an orderly changing index that influenced by Descriptive Statistics
other major economic instruments. (6) Mean Std. Deviation N
i) Research Scope/ Limitations Pakistan GDP 1.1198E2 40.87688 12
The scope of the study provides valuable Inflation rate 11.6350 6.89123 12
insight to the factors that affecting the money supply Interest rate 10.9000 2.60785 12
(M2) movements and its impact on GDP of Pakistan. CPI 1.1863E2 42.24516 12
(Table no: 2) The correlations table displays weak correlation with the GDP of Pakistan. The
correlation coefficients, significance values and the correlation coefficients on main diagonal are always 1,
number of years. Correlation coefficient represents the because each variable have a perfect and positive
association between the variables. These values of relationship with itself. The significant level or P value is
correlation coefficient range from -1 to +1. The sign of the probability of obtaining results as extreme. The
correlation coefficient indicates the direction of the significant level less (less than 0.05) except inflation rate
relationship either positive or negative. The value of that shows correlation is significant and variables are
correlation coefficient indicates the strength and values linearly related. The significant level of inflation rate is
indicate the nature of relationship either strong or weak. large or (greater than 0.05). This shows that there no
Interest rate and CPI have absolute value shows strong significant correlation and variable are not linearly
relationship with GDP of Pakistan. Inflation rate shows related with GDP.
Year 2013
Table no : 2
Correlations
Pakistan GDP Inflation rate Interest rate CPI
Pakistan GDP 1.000 .422 .930 .965
Pearson
Inflation rate .422 1.000 .6
.627 .451
Correlation
Interest rate .930 .627 1.000 .898
Global Journal of Management and Business Research ( C ) Volume XIII Issue VI Version I
CPI .965 .451 .898 1.000
HZ
Pakistan GDP . 086
.086 .000 .000
.086 . .015 .071
Sig. (1-tailed) Inflation rate
Interest rate .000 .015 . .000
9L
CPI .000 .071 .000 .
(Table no: 3) The table displays that variables 96 percent variation in the dependant variable explained
are entered or removed from method. No variable has through all independent variables and remaining 4% is
been removed from the method on the basis of not i
un-explained. Large values indicate that the model is fit
relationship with GDP. one according to data. Adjusted R squared attempts to
correct R squared to more closely reflect the goodness
Table no : 3 o fit of the model. Here, standard error of the estimate is
of
Removed b
Variables Entered/Remo considerably lower as compare to the model, if standard
Variables Variables error is less than the model is the best model.
Model Entered Removed Method
Table no : 4
1 CPI, inflation
rate, interest . Enter
En Model Summary
ratea Adjusted Std. Error of
a. All requested variables entered.
nte Model R R Square R Square the Estimate
b. Dependent Variable: Pakistan GDP 1 .982a .964 .951 9.03283
a. Predictors: (Constant), CPI, inflation rate, interest rate
(Table no: 4) This table displays R, R squared,
adjusted R squared and the standard error. We measure (Table no: 5) This table summarizes that
the strength of two variables, if the value of R is very regression output displays information about the
close to +1 than there is a strong correlation, if it is variation accounted by the model. While, residual
closed to -1 than there is negative or weak correlation. R indicates that information not accounted by the model.
is the multiple correlation coefficient, is the relationship The model with large regression sum of squares
between the independent variables and dependant indicate that the model account for most of variation in
variable. Here, we have large value of R 0.982. This the dependent variable. The degree of freedom is the
indicates that there is strong relationship. R squared is number of years minus 1.The mean square is the sum of
the proportion of variation in the dependant variable squares divided by the degree of freedom. The F
explained by the independent variables. Adjusted R statistics is the regression mean square divided by the
square has a range between 0 5 VTXDUH 5 residual mean square. Here, significant value of F
squared value is 0.964 or 96 percent. This indicates that statistics is less (less than 0.05) it means independent
variables are explaining the strong variation in the The independent variables are measures in
dependent variable (GDP). percentages. The standardized coefficient is an attempt
(Table no: 6)This table has three results: to make the coefficient more comparable. We will get
o One percent increase in inflation rate, there would un-standardized coefficients. The t statistics determine
be a decrease in GDP by -.938. the relative importance of each variable in the model.
o One percent increase in interest rate, there would be Here, t value of constant below -2 and in independent
increase in GDP by 7.980. variables i.e. inflation rate t-value also below -2, interest
o If one percent increases in CPI, there would be rate and CPI t-value is above +2.
increase in GDP by 0.560.
Table no : 6
Coefficientsa
Year 2013
-2.152 .064
Inflation -.938 .537 -.158 -1.745 .119 .422
2 --.525 --.116 .541 1.849
rate
Interest 7.980 2.883 .509 2.768 24
.024 .930 .699 .184 .131 7.621
rate
CPI .560 .155 .578 3.605 .007 .965 .787 .240 .172 5.801
a. Dependent Variable: Pakistan GDP
(Table no: 7)This table determines if there is any coefficients. Condition indices are the square root of the
problem with co linearity. Eigen value indicatess ratios of the largest Eigen value to each of successive
dimensions among independent variables. If Eigen Eigen value. If condition index greater than 15 indicates
values are close to zero, this shows that variables are a possible problem. The variance proportion is the
highly inter-correlated. Small changes in data values es variance of estimate accounted for by each principle
may lead to large changes in the e estimates of the component associated with each of the Eigen value.
c
Table no : 7
Ta
Collinearity
Collin Diagnosticsa
Dimension Condition
Condi Variance Proportions
Model
gen value
Eigen
IIndex (Constant) Inflation rate Interest rate CPI
1 3.797 1.000 .00 .01 .00 .00
1 2 .147 5.087 .04 .66 .00 .01
3 .052 8.543 .31 .05 .00 .17
4 .005 28.863 .64 .28 1.00 .82
a. Dependent Variable: Pakistan GDP
f) Hypothesis Testing and Results Hਢ: There is no significant relation between
Hਢ: There is no significant relation between Interest rate and GDP.
inflation rate and GDP. H2: There is a significant relation between
H1: There is a significant relation between Interest rate and GDP.
inflation rate and GDP. x Result
x Result The significant value of interest rate is 0.000,
The significant value of inflation rate is 0.086, which is less than 0.05. We reject the null hypothesis.
which is greater than 0.05. We accept the null This means that interest rate has a significant relation
hypothesis. This means that the inflation rate has no with GDP of Pakistan.
significant relation with GDP of Pakistan.
© 2013 Global Journals Inc. (US)
Impact of Money Supply (M2) on GDP of Pakistan
Hਢ: There is no significant relation between CPI 3. Min (2005). Inflation & Economic Growth: Threshold
and GDP. Effects & Transmission Mechanisms, Working Pa-
H3: There is a significant relation between CPI per, University of Alberta.(3)
and GDP. 4. The relationship between money supply and the
GDP of United States by Liang, Fang 08050597
x Result
Applied Economics & Huang G, Weiya 08050872
The significant value of CPI is 0.000, which is
Applied Economics.(4)
less than 0.05. We reject the null hypothesis. This means
5. Feldstein, M. and Stock, J. H. (1994). The Use
that CPI has a significant relation with GDP of Pakistan.
of a Monetary Aggregate to Target Nominal GDP
III. Conclusion and National Bureau of Economic Research p. 7-69.(5)
6. Fair R. (2001)Forecasting Growth over the Next Year
Recommendations
with a Business Cycle Index Actual Federal Reserve
Year 2013
a) Conclusion Policy Behavior and Interest Rate Rules.(6)
High rate of inflation has adversely affected the 7. Friedman, B, and Kuttner, K. (1992). Money,
economy of Pakistan which is a result of excessive Income, Prices, and Interest Rates. The American
supply of money (M2) by SBP. This study reveals the Economic Review, 82: 472-492.
impact of money supply (M2) on the GDP of Pakistan 8. Granger, C. W. J. (1969). Investigating causal
whereby we have seen inflation rate in double digits. We onom
relations by econometric models and cross spectral
have taken three indicators that is interest rate, CPI and methods. Econometrica,
o 37: 424-438.
Global Journal of Management and Business Research ( C ) Volume XIII Issue VI Version I
inflation rate because money supply is affected either 9. Grauwe, P.D., and Polan M. (2005). Is Inflation
one of them. By using regression model, it is proved that Always and Everywhere a Monetary Phenomenon?
Interest rate and CPI have a significant relation with GDP Scand. J. of Economics, 107(2): 239-59.
of Pakistan but inflation has no significant relation with 10. Herwartz, H., and Reimers H.-E. (2006). Long-Run
the GDP of Pakistan. Thus, money supply needs Links among Money, Prices and Output: Worldwide
aggressive control to boost the economy. Evidence. German E Economic Review, Vol. 7: 65-86.
11. Jamie, E. (2005). The Quantity Theory of Money:
b) Recommendations
Empirical from m the United States. Economicsc
o We have to maintain interest rate and consumer mer
Bulletin,, 5 (2
(2): 1-6.
price index at appropriate level and have to o bring 12. Khan,n, A., and Siddiqui A. (1990). Money, Prices and
the inflation rate up to (5%-6%). For this; SBP has to
Economic Activity in Pakistan: A Test of Causal
be given full autonomy to control the money supply
Relation. Pakistan Economic and Social Review,
(M2) as per financial assets available in Pakistan. As
w
winter, 121–136.
new democratic Government is to likelikely to take over
13. Ahmed Elsheikh M. Ahmed, University of Khartoum,
power in couple of months an aggressive, strong Khartoum, Sudan : The Long–Run Relationship
and vigilant control on money supply (M2), interest
Between Money Supply, Real GDP, and Price
rate and CPI for having a good GDP would be
Level: Empirical Evidence From Sudan, Journal of
challenging steps to take force into.
Business Studies Quarterly 2011, Vol. 2, No. 2, pp.
o Interest free loans for youth and qualified personnel 68-79.
to establish business would minimize the unemploy-
ment through controlled money supply (M2).
o Health insurance, education forr all, improvement in
power sector, increase in foreign remittances,
foreign direct investment and attractive foreign
currency exchange rates are the few important
areas where the new Government has to take
decision and ensure its implementation. This all can
be controlled through SBP by devising healthy
money supply (M2) policy.
Global Journal of Management and Business Research ( C ) Volume XIII Issue VI Version I