Answer
a) The government is helped since increased inflation decreases the value of outstanding debts (and increases the tax revenue).
b) The homeowner is helped since the increased inflation increases their purchasing power. The homeowner has to work fewer hours to pay the same amount for their mortgage.
Work Step by Step
c) The union workers are worse off since the wages were likely based on the nominal interest rate, not the real interest rate. The worker is receiving a real wage that isn't keeping up with inflation.
d) The endowment is worse off since the real interest rate is lower than what the endowment was expecting.
