Furthermore, since uncertainty regarding the future normally increases as inflation rises, there would be a greater possibility that long-term interest rates might rise more than the amount corresponding to the increase in the expected rate of inflation because of risk premium accompanying higher uncertainty.
If this happened, the debt burden of firms and the fiscal deficit would likely increase rather than decrease in real terms. The increase in long-term interest rates would also have an adverse impact on economic activity such as business fixed investment. Therefore, a policy to create inflation would most likely turn out to be counterproductive to the objective it was initially intended to achieve.