Macroeconomics is the branch of economics that studies how economies as a whole, including all of their component pieces, behave (markets, firms, consumers, and governments). Macroeconomic phenomena that are researched by macroeconomists include changes in the unemployment rate, price levels, economic growth, national income, and GDP.
There are some key questions that macroeconomics aims to resolve, for example,
What are the underlying causes of unemployment, Why is there an increase in prices? What causes a rise in economic activity? Go to macroeconomics if you want to know how well an economy is performing, what variables are influencing it, and how you may make it even better.
Firstly, we would look at the Inflation rate. Because an inflationary tendency tends to raise market rates, which leads to a reduction in credit granted by banks, using inflation as a macroeconomic variable is based on the idea that economic growth improves the quality of bank credit portfolios. As a result, it stands to reason that an increase in inflation would reduce the assets of banks.
Then the second variable we would address is the Exchange rate. The Real Effective Exchange Rate (EXR), which is used, is obtained by multiplying the Nominal Effective Exchange Rate by the Effective Relative Price Indices. According to effective exchange rate theory, a rise in the real value of the effective exchange rate is projected to cause both inflation and bank asset quality to decline. Using a real effective exchange rate is acceptable because imports play a significant role in economies like Nigeria.
As a very good substitute for short-term interest, which makes up the vast majority of the maturity profile of the lending activities of Nigerian banks, the monetary policy rate was chosen.
Borrowing becomes more expensive for borrowers, reducing their ability to service debt, and thus the quality of a bank’s assets is expected to decline as interest rates rise. Bank profits are expected to rise regardless of interest rate.
Another variable which would be addressed is the Gross domestic product (GDP), This describes the monetary or market value of all finished products and services produced inside a nation’s borders over a specific time period. A country’s overall national output is a good general indicator of its economic health.
Although weekly estimates of the gross domestic product are frequently available, annual estimates are the norm. For instance, the government of the United States releases an annualized GDP estimate on a yearly basis during the calendar year and on a quarterly basis throughout the fiscal year. Each data set used in this analysis comprises actual numbers that have been adjusted for inflation.
Finally, there is “money supply”, this refers to all of the coins, bills, and other liquid assets that are in use at the moment the money supply of a nation is computed. The money supply is comprised of liquid deposits and cash equivalents.
Governments issue coins and paper money through central banks and treasuries. Bank regulators have an impact on how much money is available to the general public because of their instructions to banks regarding reserve requirements, loan extension policies, and other monetary matters.
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