The nominal interest rate is 7% on a 1-year loan for $1,000. The lender had anticipated an inflation rate of 2% for the coming year. During the year, however, the economy experienced deflation of 4%. In this case:
a. the borrower is hurt and the lender is helped by deflation.
b. the borrower is helped and the lender is hurt by deflation.
c. there is no benefit or harm either to the borrower or the lender.
d. the effects on the borrower and the lender depend on their respective tax rates.
e. both the borrower and lender are hurt by deflation.
