Consider the following statements : 1. Inflation benefits the debtors. 2. Inflation benefits the bondholders. Which of the statements given above is/are correct?

Statement 1 is correct. Inflation erodes the real value of money, so a borrower repays a loan with money worth less than what was borrowed. Debtors, including governments with large fixed-rate debt, gain during inflation while lenders lose.

Statement 2 is wrong. A bondholder receives a fixed coupon, and when prices rise, the purchasing power of that coupon and of the principal repaid at maturity falls. Bondholders are a classic loser from unexpected inflation, which is why real returns matter more than nominal yields.

Option logic: A is correct because only statement 1 holds. B and C fail because statement 2 reverses the effect. D is wrong because statement 1 is clearly true.

Core concept: the redistribution effect of inflation between debtors and creditors, and the gap between nominal and real returns (real rate roughly equals nominal rate minus inflation). Mains angle: GS-III on monetary policy, RBI's inflation targeting, and why price stability protects fixed-income savers, pensioners and small depositors.

Trap: Aspirants assume bonds are a safe asset, or argue that rising prices push nominal bond prices up, and so mark statement 2 as correct. Always reason in real terms.