Inflation and real changes in price . For the nominal analysis, inflation must be incorporated into the benefits, the costs and the discount rate. Whether the real or nominal approach is taken, we must always take into account the relative price variation. Price variations are caused by variations in the supply of and demand for a good. This phenomenon is microeconomic rather than macroeconomic.
Economists prefer analysis in constant dollars since the mask of inflation is removed.
Financiers prefer nominal analysis since loans are done in current dollars. PART V Uncertainty and risk and cost-benefit analysis 1. In a situation involving uncertainty, the probabilities are unknown 2. The discount rate adjusted for risk discounts future benefits and costs at an increasing rate. Economists prefer not to use this method.