Which of the following statements is/are correct regarding effects of Inflation?1.Redistribution of wealth from creditors to debtors.2.Negative impact on people with fixed salaries.3.Will benefit a bondholder.Select the correct answer from the codes given below:

[A] 1 only

[B] 2 and 3 only

[C] 3 only

[D] 1 and 2 only

Answer: D

Notes:

Statement 1 is correct: Inflation hurts lenders and benefits borrowers. Lenders suffer due to inflation. It is because the money they get paid back has less purchasing power than the money they loaned out.
Statement 2 is correct: Inflation erodes the value of money. Thus, it will hurt people with a fixed income. People on fixed salaries, fixed pensions etc will be negatively impacted by inflation as they will be able to buy less.
Statement 3 is incorrect:Inflation will hurt a bondholder as he is also a lender. A bondholder has lent money to a debtor. So, he will be at a loss.

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