Why does the government have a low rate of inflation as a macroeconomic objective?

Expert Answers

An illustration of the letter 'A' in a speech bubbles

The reason for this is that inflation can feed on itself, creating more and more inflation.  Uncontrolled inflation can destroy an economy.

If there is too much inflation, lenders will not want to lend money.  They will not know how much the currency will be worth by the time they get paid so they will prefer not to lend.  This will ruin the economy because no lending means that businesses can not get started, cannot expand, and may not even get the loans they need to operate on a day to day basis.  

In addition, no lending means no buying of big ticket items by consumers.  Consumers need to borrow to buy cars and houses in particular.   They also borrow through credit cards.  If there is no such lending, the economy grinds to a halt.

Approved by eNotes Editorial Team
Soaring plane image

We’ll help your grades soar

Start your 48-hour free trial and unlock all the summaries, Q&A, and analyses you need to get better grades now.

  • 30,000+ book summaries
  • 20% study tools discount
  • Ad-free content
  • PDF downloads
  • 300,000+ answers
  • 5-star customer support
Start your 48-Hour Free Trial