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Statement 1: Inflation reduces purchasing power. Statement 2: Inflation always benefits savers.

1. Only Statement 1 is correct
2. Only Statement 2 is correct
3. Both are correct
4. Neither is correct

Correct answer: Only Statement 1 is correct

Solution

Inflation reduces the purchasing power of money because the same amount buys fewer goods and services. It does not always benefit savers; in fact, inflation can hurt savers if returns on savings are lower than the inflation rate.

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