Consider the following statements:
- Inflation benefits the debtors.
- Inflation benefits the bondholders.
Which of the statements given above is/are correct?
[UPSC Civil Services Exam – 2013 Prelims]
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2
- Inflation redistributes wealth from creditors to debtors i.e.lenders suffer and borrowers benefit out of inflation.
- Bondholders have lent money (to debtor) and received a bond in return.
- So he is a lender, he suffers (Debtor benefits from inflation).
- Hence statement 1 is correct.
- Statement 2 has not used specifically the word “inflation-indexed bonds”, hence we cannot say Inflation benefits the bond-holders.
- Hence statement 2 is incorrect.