On inflation, deficit, debt, exchange rate (complement of budget 2010-2011)

I'm not doing economic for undergraduates so the following Its just general rule of macroeconomic that i knew must be true.

Ok, the only cause of persistent inflation inside a country is demand more than supply.

This mayb caused by
(i) More money created than increase need in productivity. ( mainly by government deficit)
(ii) International commodities price increase due to raising demand globally. ( like what happened to crude oil price in 2008)

Contrary to many believes,the following do not cause long term persistent inflation.
(i) Temporary government measure in raising tax for general goods. ( Like imposing VAT, value added tax). As this is done in one-term, and demand will generally fall when price increase, thought not elastically.
(ii) Depreciation of exchange rate . first, it will not affect local wages. Second, increase price in import goods will shift customer preference to local production.
(iii) Sudden large depreciation of exchange rate . This is often the consequence of hyperinflation and bad government monetary and budgetary policy rather than the cause.

What does inflation mean? simply, the loosing real term value of every bank notes that you are holding.
In an extreme case, if the inflation rate is 25%, you will can only buy 80% of the item that you can buy now in next year.

What are the consequence of high inflation mean?
Simply, it encourage people to spend now, even if thats mean borrowing large chunk of loan.
As you will see your real-term value of saving decreasing, you will buy whatever you want now instead of waiting for some years. Like housing .
Companies will take loans to buy new production equipments , or simply make acquisition, as the real -term actual amount they need to pay back become less in the future.
As a result, economy grows, government has more revenue, and the debt burden it carry will be lessen.
So the government will like moderate inflation, as long as it didnt hurt the economy.

But the problem with inflation cause economy boom do not last long, economy growth will need productivity growth to support, else it can only be sustained by borrowing money from the future.

Government deficit will cause government debit. The consequence of high government debit are either
(i) if the goverment debit is funded by borrowing from abroad, high debit level cause foreign investor worried about ability of the government to pay back the debt, hence they start dumbing government bond in foreign exchange market, which cause the currency to depreciate. ( like what happened to Euro and Pounds when Uk gov debt, PIGS( portugal, ireland , greece , spain) debt soared)
(ii) If the government debit is funded by domestic investor( mostly pension fund), large amount of gov debt will drive the interest rate low, so low that even a PER of 30 in stock market seemed more profitable than investing in gov bond.
( PER= price earning ratio, namely price of share divided by dividend, the higher the number, the higher the price).

The only way that a government running deficit but saw the currency appreciate is either, other country are doing badly, or the country still have international trade surplus( more export than import)

Cutting government spending, or raising tax would be very painful in the short run, especially in democratic country where both will cause ruling party loosing support.
Therefore , in the long run, government will like to keep inflation moderate , deficit moderate, to grow themselves out of debt burden.As long as everything under control.