How can inflation impact market participants differently Ex

• How can inflation impact market participants differently? Explain how some market participants can benefit from inflation, while other market participants can lose. • Why is deflation bad? • Why should real values be more important to market participants than nominal values?

Solution

Inflation is termed as rising prices of the goods and services year by year. It affects the market participants differently.The market can be classified into two categories of earners. Fixed income earners and the flexible income earners.Fixed income earners like salaried persons are the losers as the prices rise whereas the flexible income earners like businessman, manufacturers and industrialists gain from the price rise.

Impact of inflation on market participants :

Deflation is the reduction in the prices of the commodities.This allows one to buy more goods and services with the same amount. Thus the general demand of the population rises. If the manufacturers are not able to supply in the required quantity , it would lead to disturbance and unrest in the economy.

Real value of a good has been adjusted for inflation and thus the comparison can be made as if the prices have not been changes. On the other hand, nominal value is not adjusted for inflation and it shows the value of the commodities without any efefct of inflation on it. Thus real value is more important to market participants than nominal values.