How can government policy influence inflation rates in an economy?

Government policy can influence inflation rates in several ways, primarily through fiscal and monetary policies. Fiscal policy involves government spending and tax decisions; when the government spends more money or cuts taxes, it can increase demand for goods and services, leading to higher prices, or inflation. On the other hand, monetary policy, managed by a country's central bank, controls the money supply and interest rates. For example, if the central bank lowers interest rates, it encourages borrowing and spending, which can also push prices up. Therefore, by adjusting these policies, the government can either help control inflation or, if not managed carefully, may contribute to higher inflation in the economy.