Correct Option (A):
Statement 1 is correct. Inflation benefits debtors. When inflation occurs, the purchasing power of money decreases over time. Debtors repay their loans with money that has a lower real value (less purchasing power) than the money they originally borrowed. This effectively reduces the real burden of their debt, as the fixed nominal amount they owe represents less value in terms of goods and services.
Incorrect Options:
Statement 2 is incorrect. Inflation generally harms bondholders. Bonds typically offer fixed nominal interest payments and a fixed principal repayment at maturity. During periods of inflation, the real value (purchasing power) of these fixed future payments erodes. Consequently, the real return on bonds diminishes, leading to a loss for bondholders as their income and principal can purchase fewer goods and services. Therefore, bondholders do not benefit from inflation.
Based on the analysis, only statement 1 is correct. Hence, options 2, 3, and 4 are incorrect.