The monetary base has been historically correlated with inflation and government debt. Increasing government debt results in an increase of the money supply, as the Federal Reserve buys the debt (Treasurys) with created money. Increases in the money supply are commensurate with an increase in inflation, per historical measures. (Reference: http://www.econideal.com/2011/08/national-debts-debt-monetization-and.html) From 2008 to 2012, the adjusted monetary base has exploded to keep government and mortgage borrowing costs low.
Inflation has a lot of impact on monetary unit assumption. Inflation greatly reduces the value of a monetary unit and acts as a hidden tax on consumers.
Monetary policy can have an impact of inflation. The ideal state of the economy is a balance between inflation and unemployment at 4.3% which is only seen in a wartime economy.
Look here http://en.wikipedia.org/wiki/Inflation#Causes
A decrease in the monetary base can lead to a reduction in the money supply, causing potential deflation and a decrease in economic activity. It can also lead to higher interest rates, making borrowing more expensive for households and businesses. Central banks usually aim to manage the monetary base to influence economic growth and inflation.
Edward Nelson has written: 'Milton Friedman and U.S. monetary history' -- subject(s): Monetary policy 'Monetary policy neglect and the great inflation in Canada, Australia, and New Zealand' -- subject(s): Inflation (Finance), Monetary policy
Milton Friedman
Athanasios Orphanides has written: 'Monetary policy in deflation' 'The decline of activist stabilization policy' 'The reliability of inflation forecasts based on output gap estimates in real time' 'Inflation scares and forecast-based monetary policy' -- subject(s): Forecasting, Inflation (Finance), Monetary policy, Rational expectations (Economic theory) 'Monetary policy with imperfect knowledge'
Aggregate demand is actually influenced mostly by the nation's monetary policy and fiscal policy, not so much by inflation. Aggregate demand is actually influenced mostly by the nation's monetary policy and fiscal policy, not so much by inflation.
M2 is larger than monetary base. Monetary base includes only currency with the public and reserves of commercial banks kept with central bank. Monetary base plus time deposits is equal to M2 and hence M2 is broader money while monetary base is known as narrow money.
The gain in purchasing power that is derived from holding monetary assets and/or monetary liabilities during a period of changing prices. An increase in prices tends to devalue monetary assets and monetary liabilities. Thus, if a firm's monetary liabilities exceeded its monetary assets, inflation would tend to produce monetary gains.
Print more money
contract the money sypply