The existence of the financial market helps our to borrow from the future to pay for more goods and services at the current time, or save for now and spend more in the future. Therefore, it can shift our budget constraints outwards. When we have larger budget constraints, we are able to spend more at some point of our time.
From a basic financial market, there are only two time periods, when we expand our timeline to infinite, at each time point, more outputs will be generated at each time period. In addition, an infinite leverage is theoretically possible if some party in the financial market is willing to take an infinite risk. Therefore, when the financial market is willing to take more risks, the supply side in the ordinary market can use the financial market leverage their capitals to a greater degree and indirectly increase their other production factors.
When the supply side is able to gain more production factors, they can help to supply more to the market. Under such circumstance, when the supply shifts upward, the price level tends to decrease. Therefore, when the financial market is willing to take more risks, the price levels are likely to drop.
However, the demand side also has access to the financial market. They can boost their demand. So when both the supply side and the demand side increase, the price levels will not change. However, the supply and the demand do not necessarily move in parallel; therefore, the market can experience some degree of price change. When the demand increases more than the supply, the price levels will increase, and vice versa.
Overall, the existence of the financial market does not have significant impacts on the price levels in the ordinary markets.
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