Some economists use the term devaluation to refer to the increase in the exchange rate under a system of fixed exchange rates. They reserve the term depreciation to refer to the increase of the value of the foreign currency with respect to the national currency under a system of flexible exchange rates.

Public expenditure is spending by the public sector during a given period of time. It includes fiscal spending, plus all the spending by fiscal and semi-fiscal firms with autonomous administration from central government. Public spending is used for purchasing goods for public consumption or capital goods, and public investment.

Consumer prices are the amounts of currency units recognised in the last link of the chain of intermediaries that intervene in the process of marketing a certain product. As well as production costs, this price includes storage and distribution costs, for example, transport costs, sales commissions, intermediary margins, etc.

Monetary policy is the set of measures taken by the monetary authority whose principle objective is to obtain stability of currency value and avoid prolonged instability in the balance of payments. This is concentrated in the management of the amount of money and financial conditions, such as the conditions concerning interest rates, credit volumes, discount rates for minimum reserve requirements amongst others. It is strongly linked to the foreign exchange policy as regards control of the amount of money, and to fiscal policy, when the monetary authority must provide the fiscal sector with credit or finance its budget deficits. The instruments used by monetary policy are discount rates, minimum reserve rates, currency issues, and controls over interest rates and the international movement of capital amongst others.

It is the Central Bank's policy for the control of money, rates of interest and credit conditions. Its instruments are mainly open market operations (OMOs), minimum reserve requirements and discount rates.

Fiscal policy is the set of measures implemented by the government intended to guide the economy towards certain targets. The main tools available to the government for this are the management of the volume and destination of public spending. Fiscal policy also includes the ways to finance government spending. For example, if the economy is entering a period of recession, the government can reduce taxes and increase spending in order to expand aggregate demand and thus suppress the recession. If there is a high level of unemployment, the government can try to create new jobs and grant temporary subsidies to the unemployed. If there is a high inflation rate, the government will try to reduce spending to compensate possible pressures on demand and moderate the increase in prices.

The objectives of policy can be to moderate economic cycles, to endeavour to raise national income, redistribute income, provide public services, increase employment, etc. Nevertheless, in certain situations, obtaining an objective of the fiscal policy, will be necessarily be conditioned, in the final instance, to the general objectives of the economic policy pursued by the government in a given moment.

The phenomenon of inflation is defined as a substantial, persistent and sustained increase in the general level of prices over the course of time. In order to explain why this phenomenon can produce very damaging results for the economy in general, and the development of a country it is necessary to use terms other than conceptual simplicity.

According to certain reasoning, inflation has the capacity to promote economic growth, basically in those economies with a low level of income and therefore a small capacity to generate savings enabling the financing of investment, increased employment and, in general, productive activity. This reasoning even considers that the economic authorities, by using their capacity to create currency, can actually increase it, creating price increases with the hope that this will bring greater economic growth, so long as the increase of money is used to stimulate investment. The authors of such reasoning suppose that the economic system has a sufficiently flexible response, so that an initial excess of money for the financing of the productive sector, is compensated when investments bear fruit, due to an increased supply capacity of the economy, which finally will lead to adjustment and stability in medium and long term prices.

In simple terms, deflation is a substantial and persistent decreasing trend in the general level of prices. Generally, it is identified as a situation where the rhythm of economic activity is reduced.

Deflation occurs when, within an economy, income is depressed and demand weakens and tends to decrease. If the deflationary process occurs with a persistent reduction in commercial and general business activity it is identified as a recession.

If the situation worsens even further and the reduction of economic activity reaches critical levels, with bankrupt firms, high unemployment and an increase in the scarcity of capital, depression makes its appearance.