Inflation can be reduced by reducing the money supply. Why doesn't the government reduce the money supply? What index is used to reflect the inflation rate?
That's a good question. You're right. Reducing the money supply can reduce inflation, and the government is fully capable of doing so. But when judging whether to do so, the government still has more considerations. For example, when introducing foreign capital to invest in China, in order to maintain a low exchange rate, it has to issue more money, that is, we often hear about foreign exchange, which itself is the driving force of inflation. If you don't issue more money, it means that the RMB will appreciate sharply against foreign currencies, and the RMB will appreciate against foreign currencies. It should be said that any financial or monetary means or economic means to deal with economic problems will have advantages and disadvantages, and how to weigh them is what the government should do. How to be more beneficial to yourself is also what a responsible government should do. The inflation rate is generally measured by the consumer price index, that is, CPI.