Q. Consider the following statements:

  1. Inflation benefits the debtors.
  2. Inflation benefits the bondholders.

Which of the statements given above is/are correct?

  • 1 only
  • 2 only
  • Both 1 and 2
  • Neither 1 nor 2

Answer: (a) 1 only

Notes:
  • Inflation redistributes wealth from creditors to debtors i.e. lenders suffer and borrowers benefit out of inflation.
  • Inflation brings benefit to borrowers (debtors) while the profit on the bonds gets eroded (higher the inflation lower the return on bonds through interest).
    • Since, Bondholders have lent money (to debtor) and received a bond in return. So he is a lender, he suffers (and Debtor benefits from inflation).