Question

If unexpected inflation does not exist:

a. Lenders gain at the expense of borrowers.

b. Borrowers gain at the expense of lenders.

c. Neither borrowers nor lenders gain or lose.

d. Both borrowers and lenders lose at the expense of the government.

Answer 1

Option

c. Neither borrowers nor lenders gain or lose.

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real interest rate = nominal interest rate - expected inflation -unexpected change in inflation

if there is no unexpected change in inflation then the borrower and lender both paying each other the in real money terms and no one benefits or loss in the transaction

But if there is unexpected inflation then the lender will get less in real term so the lender loss and if inflation decrease then the borrower losses.