Aggregate demand Vs. Aggregate supply: Aggregate demand relates to the total demand for all goods and services to the general price level in an economy and the same goes for aggregate supply. With an increase in fuel price, the multiplier effect would be that aggregate demand would drop and aggregate supply would follow suit. Owing to epileptic power supply and not too efficient transportation systems, the Nigerian populace either as individuals or enterprises are heavily and directly dependent on petrol to power their generators and their vehicles. Invariable, the increased cost would be transferred to the consumers.
Aggregate demand Vs. Aggregate supply: As far as some other Nano-Economic effects much of which Macro-Economics might not capture is that Wife’s will tend to demand more from Husbands that have a reducing supply. This is different because while the supply of Husbands will reduce will increased fuel prices, the demand by wife’s will increase because of price increase in everything from shoes to vegetables.
Disposable Income, Consumption and Employment: In such a situation of increased fuel prices, Income should increase but since no one from government down to our “wonderful” bosses is willing to accept responsibility, income remains statics as organisations face rising cost of operating. Consumption reduces and people have to hold on to their employment with both arms and legs as employers will resort to laying off staff as their operating expenses increase. Therefore people would remain in their jobs without an increased pay and might not even complain about a pay cut.
Disposable Income, Consumption and Employment: The disposable incomes of those running pubs or “beer parlours” if you like have increased, as the consumption of alcohol and its derivatives have significa
ntly increased. Employment rate will reduce and people would hate their jobs and compensation even more. Well, history hardly records of any brewery that didn’t survive a depression (just wondering).
Government spending: According to the CBN, the government would save about $3.94 billion on the reduction in fuel subsidy by increasing the price from 65 Naira to 97 Naira. The funds would be transferred to consumption through investments in capital projects and other “palliative” measures, government would also reduce its internal borrowings and make more money available to the private sector.
Government spending: Well, government spending rarely goes down and even when they decide to reduce basic salaries of the executives by 25% there is a tendency that they could replace that with a “subsidy allowance” that should be equivalent to the deducted 25%. There is no better time to be in government than now. The employment benefits are great.
Inflation, Interest Rates and Investments: Inflation refers to the increase of money in circulation. This is driven by the rise in general prices of goods and services as a result of the increase in the pump price of petrol. Owing to the rise in prices, saving money in the bank will become unattractive and banks will have to increase interest rates to attract deposits and in turn, the cost of borrowing will increase which will adversely affects Investment by firms.
Inflation, Interest Rates and Investments: In times of economic hardship, many more people remember their creator. This implies that the occupancy rate at religious centres will significantly increase and as such, there is a lot of value inflow into religious centres. As such, there is an increased circulation of money in religious centres. Religious centres rarely borrow from banks (instruction from above) so their relationship with banks is usually that of making deposits. As far as investments are concerned, the emergence of religious centres owned high schools, universities, estates, hospitals, hotels, road transport companies and airlines are proof that significant forms of investment are being made religious centre thereby transferring value into the society, providing employment and adding value.
Net-exports and Exchange rates: Net-exports refer to the difference between the imports and exports as a result of the change in fuel prices. Owing to the increase in fuel prices and a resultant decrease in consumption of fuel, importation of fuel would reduce. Importation had increased over the years because of dysfunctional refineries and the excessive subsidies gave rise to increased consumption. With reduced internal consumption, government will likely import less and export more. Exchange rate for the naira against the Dollar will increase as the CBN will demand less dollars which will lead to the appreciation in the value of the Naira.
Net-exports and Exchange rates: Popular statistics has it that of every 5 Africans on any part of planet earth, 1 is a Nigerian. This will probably be revised to 2 because even as Nigeria declined in its exports of agricultural and industrial produce, she increased in export of her oil and particularly her citizens to every part of the world. Harsh economic times mean that Nigerians will flee to Europe, America, Asia and even Antarctica. For exchange rates, let’s look at the increased cost of marriage and parents would now include gallons of fuel in the bride price list and the rate for exchanging (cost) their daughters will increase while the rate of exchanging (frequency) their daughters reduce. Is it not evident?? How many weddings have you attended this year?
By: Dada Olusegun, MBA 10, olusegun.dada@lbs.net.ng
