UPSC Prelims 2013 · GS Paper I
Question 66: Economy and Social Development
Consider the following statements :
- 1.Inflation benefits the debtors.
- 2.Inflation benefits the bond-holders.
Which of the statements given above is/are correct?
AnswerUPSC’s answer is (a).
Inflation lowers the real value of money. A debtor repays a loan in rupees that buy less than when they were borrowed, so inflation benefits debtors and hurts lenders. A bond-holder is a lender who receives a fixed interest and a fixed principal, whose real value falls as prices rise, so bond-holders lose. Statement 1 is correct and statement 2 is wrong.
- 1. Debtors repay in cheaper money.
- 2. Bond-holders get fixed payments whose real value falls.
How you could have got this
- If you were sure statement 1 is correct, (b) and (d) go: each of them leaves 1 out.
What you needed to know: Debtors repay in cheaper money.
- Then, if you were sure statement 2 is not correct, (c) goes: it includes 2.
What you needed to know: Bond-holders get fixed payments whose real value falls.
Only (a) is left. This one needs every statement.
Which options go is worked out from UPSC’s key and the options, not by a model.
Why each option is right or wrong
- (a) Correct. Debtors gain from inflation.
- (b) Wrong. Bond-holders lose in real terms.
- (c) Wrong. Statement 2 is false.
- (d) Wrong. Statement 1 is true.
Answer: UPSC’s key. Explanation: written by UPSC Grade, not by UPSC.
Source: UPSC, Civil Services (Preliminary) Examination 2013, General Studies Paper I, Series A. The paper on upsc.gov.in.