Effect of Inflation and Costs for Managing Inflation

Since inflation carries both positive and negative effects on the economy and the control of them bears certain costs, governments have to weigh the tradeoffs when combating inflation. It then becomes especially difficult for governments to curb inflation at its mild stage because enterprises and households are used to indulging in money illusions. Rational governments, neither from the West nor the East, are in favor of inflation, as they all wish to maintain stable economic climates. The common problem bothering the governments lies in the costs to decrease such inflation. As a result, the evaluation of the positive and negative effects and the costs of controlling inflation will become a critical referencing index for governments to formulate an anti-inflation policy.