UPSC Prelims 2013— Question 66

Concept and answer: Option A is correct. Inflation reduces the real value of fixed nominal debt, so borrowers or debtors can benefit when prices rise unexpectedly because the debt is repaid with money of lower purchasing power. Bondholders receiving fixed nominal payments generally lose in real terms. Hence statement 1 is correct and statement 2 is not. The question should be solved by testing each proposition separately before checking which answer combination contains only the valid statements. Option A: Correct. This option is the combination or proposition that matches the verified principle described above. It does not introduce a contradiction or an unsupported qualification. Option B: Incorrect. This alternative does not match the verified principle tested by the question. It either reverses the relationship, assigns the feature to the wrong institution, place, process or category, or includes an additional proposition that is not correct. The fact that an option may contain a term related to the subject does not make the entire option correct. Option C: Incorrect. This alternative does not match the verified principle tested by the question. It either reverses the relationship, assigns the feature to the wrong institution, place, process or category, or includes an additional proposition that is not correct. The fact that an option may contain a term related to the subject does not make the entire option correct. Option D: Incorrect. This alternative does not match the verified principle tested by the question. It either reverses the relationship, assigns the feature to the wrong institution, place, process or category, or includes an additional proposition that is not correct. The fact that an option may contain a term related to the subject does not make the entire option correct. Exam takeaway: the decisive point is the distinction stated in the core explanation, and Option A is the only choice fully consistent with it. For Prelims, avoid selecting an option merely because one part sounds familiar. Read the entire alternative, identify the controlling constitutional provision, historical fact, scientific mechanism, geographical location or economic definition, and then eliminate choices that overstate, omit or misclassify that point.