How does a low rate of inflation affect the economy?

Despite a consumer based economy, why inflation rate in US is so low? Despite savings based economy why the inflation rate in India is so high?

• What are the pros and cons of both consumer and savings based economy ? And finally if you have to pick one for a developing country like India which one it would be , why ?

• Answer:

  US & India cannot be compared because Dollar is a reserve currency and Rupee isn't. Because of this, US can export its inflation. India cannot. According to the Austrian school of thought, inflation is nothing but disproportionate increase in money supply. Ludwig von Mises, an Austrian school economist, believed that money prices and wages will inevitably rise when the supply of money and bank credit is increased. He therefore used the term "inflation" to mean an excessive increase of the money supply and not, as is the common usage, to refer to price inflation. In Mises' view, inflation is the result of policies of the government or central bank which result in an increase in the circulating money supply. Mises wrote: In theoretical investigation there is only one meaning that can rationally be attached to the expression Inflation: an increase in the quantity of money (in the broader sense of the term, so as to include fiduciary media as well), that is not offset by a corresponding increase in the need for money (again in the broader sense of the term), so that a fall in the objective exchange-value of money must occur http://en.wikipedia.org/wiki/Austrian_School Since inflation is simply disproportionate increase in money supply, and there is high inflation in India, it follows that India is printing money at full throttle. The US is doing the same through QE but dollar being the reserve currency, there are more dollars outside the US in it. So the negative impact of its money printing is distributed to the entire world. In other words, it can export its inflation. Besides, the newly printed dollars can be used to fund more imports. So US has nothing to lose by printing more dollars, except for trust in the dollar as a stable currency. Why is Indian government printing so much money? To fund expenses over and above what the it earns via taxes. When the government introduces big ticket programs but does not have the money to pay for them, it simply prints the difference.