Inflation and low interest rates wipe out debt and transfer wealth. Governments try to make a balance of interests between lenders and borrowers, also at times defending the currency value. Rapid price changes are destructive to the economy.

There are defects in the way that money is created, which encourages debt and inflation. Payment of debt is deflationary, shrinking the money supply and tending toward recession.

Boom and bust is a tradition of the western world with about 400 years of history. Market prices are driven too high sometimes and too low other times, in cycles that are intended to force property owners to sell cheaply in a crisis. The cycles are fundamental to fiscal policy and monetary policy.

Governments control the money supply with interest rates and push inflation up or down with deficit spending to drive the cycles while attempting to meet conflicting demands and remain in power.

Generally inflation is adopted as an management tool to understand the outputs ..... for example productivity by the government so on.....

Inflation is and has been, an exceedingly debated in economics. Indeed, even the utilization of "inflation" has distinctive implications in various settings. Numerous economics, businessmen, and lawmakers maintained that direct inflation levels are expected to drive consumption, working under the bigger, all-encompassing supposition that larger amounts of spending are pivotal for economic development. The Federal Reserve normally focuses on a yearly rate of inflation in most countries, trusting that a gradually expanding value level keeps business profitable and keeps consumers from waiting for lower price. There are some who trust the essential capacity of inflation is to avoid deflation.

In every country, the government takes steps to help the economy achieve the goals of growth, full employment, and price stability. In the United States, the government influences economic activity through two approaches: monetary policy and fiscal policy. Through monetary policy, the government exerts its power to regulate the money supply and level of interest rates. Through fiscal policy, it uses its power to tax and to spend.

Monetary Policy

Monetary policy is exercised by the Federal Reserve System (“the Fed”), which is empowered to take various actions that decrease or increase the money supply and raise or lower short-term interest rates, making it harder or easier to borrow money. When the Fed believes that inflation is a problem, it will use contractionary policy to decrease the money supply and raise interest rates. When rates are higher, borrowers have to pay more for the money they borrow, and banks are more selective in making loans. Because money is “tighter”—more expensive to borrow—demand for goods and services will go down, and so will prices. In any case, that’s the theory.

Fiscal Policy

Fiscal policy relies on the government’s powers of spending and taxation. Both taxation and government spending can be used to reduce or increase the total supply of money in the economy—the total amount, in other words, that businesses and consumers have to spend. When the country is in a recession, the appropriate policy is to increase spending, reduce taxes, or both. Such expansionary actions will put more money in the hands of businesses and consumers, encouraging businesses to expand and consumers to buy more goods and services. When the economy is experiencing inflation, the opposite policy is adopted: the government will decrease spending or increase taxes, or both. Because such contractionary measures reduce spending by businesses and consumers, prices come down and inflation eases.

The National Debt

If, in any given year, the government takes in more money (through taxes) than it spends on goods and services (for things such as defense, transportation, and social services), the result is a budget surplus.

Macroeconomics and Microeconomics

In the preceding discussion, we’ve touched on two main areas in the field of economics: (1) macroeconomics, or the study of the economy as a whole, and (2) microeconomics, or the study of the economic choices made by individual consumers or businesses. Macroeconomics examines the economy-wide effect of inflation, while microeconomics considers such decisions as the price you’re willing to pay to go to college. Macroeconomics investigates overall trends in imports and exports, while microeconomics explains the price that teenagers are willing to pay for concert tickets.

Methods to Control Inflation

Inflation is generally controlled by the Central Bank and/or the government. The main policy tools to control inflation include:

If we follow Milton's rule, then inflation can be imposed in the form of progressive taxation which is considered as a way to make equal distribution of income and wealth in the economy.

A little amount of inflation is helpful for an economy, because it leads to the growth of the economy.

But at the same time, too much inflation is also harmful for the economy, because, mainly the poor common masses suffer from it.

The government of a country adopts inflation as a management tool with the objective of controlling excess money supply.

• Dear Aurelio, economics is not my a field of my professional study. However, I agree with you and in my opinion government uses everything as management tools. Greetings, Janusheva

Government definitely adopts management tools through the intellectual people who hold key responsibilities, it is definitely need to be looked at a boarder prospective ....

Thank you very much for the kind insights, fellow scientists.

All the best for all of you.

Prof. A. Hess

Following

I agree with Dr. Lucero.

Inflation is due to the government's ineffectiveness, which will also lead to a long-term downturn