"Variable inflation hurts both debtors and creditors because: a. inflation makes the money-fixed assets of creditors worth less. b. inflation makes the money-fixed liabilities of debtors worth less. c. most debtors and creditors are risk averse. d. most debtors and creditors are risk neutral"

Answer: Variable inflation can indeed affect both debtors and creditors, but it affects them in different ways:

a. Inflation makes the money-fixed assets of creditors worth less. This is true; as a creditor, if you have lent money at a fixed interest rate and inflation rises, the value of the money you receive back in terms of purchasing power is less than the value of the money when you loaned it out. So, if a creditor has a lot of money in fixed-income assets like bonds, high inflation can erode the real value of those assets.

b. Inflation makes the money-fixed liabilities of debtors worth less. This statement can also be true, but it actually benefits the debtor. If a debtor has borrowed money at a fixed rate of interest and inflation rises, the money they pay back is worth less in real terms than the money they borrowed. Essentially, the debtor pays back the loan with money that is worth less than when they took the loan, which reduces the real burden of their debt.

c. Most debtors and creditors are risk-averse. This statement is about the attitude towards risk. Risk-averse individuals prefer certainty and are likely to prefer stable, predictable returns rather than uncertain ones. This characteristic doesn't directly explain how variable inflation hurts debtors and creditors. However, it does suggest that both groups might be uncomfortable with the uncertainty that comes with variable inflation.

d. Most debtors and creditors are risk neutral. This is the opposite of c.; a risk-neutral person is indifferent to risk—they don't care whether returns are stable or variable as long as the expected return is the same. Like c., this doesn't directly address why variable inflation is problematic. But in reality, very few people are truly risk-neutral; most prefer certainty, especially when it comes to financial matters.

From the options provided, a. and b. are the reasons why variable inflation can hurt creditors and debtors, respectively, by changing the real value of money-fixed assets and liabilities. It's important to note that, generally, inflation is seen as worse for creditors than for debtors, because debtors can repay their loans with money that is worth less. Creditors, on the other hand, lose out because they receive money that is worth less than when they lent it.