Consider the following statements:
- 1. Inflation benefits the debtors.
- 2. Inflation benefits the bond-holders.
Which of the statements given above is/are correct?
1 only
2 only
Both 1 and 2
Neither 1 nor 2
Answer is Right!
Answer is Wrong!
This question was previously asked in
UPSC IAS – 2013
Inflation is the decline of purchasing power of a given currency over time. When there is inflation, the real value of money decreases. Statement 1: Debtors benefit from inflation because the fixed amount of money they owe becomes less valuable in real terms when they repay it later. Statement 2: Bondholders (creditors) are typically harmed by inflation because the fixed interest payments they receive and the principal amount they get back at maturity are worth less in real terms due to the decreased purchasing power of money.