Which of the following will be the outcome if an economy is under the inflationary pressure? 1. Domestic currency heads for depreciation. 2. Exports become less competitive with imports getting costlier. 3. Cost of borrowing decreases. 4. Bondholders get benefitted. Select the correct answer using the code given below.

When an economy faces inflationary pressure, the general price level rises, leading to specific macroeconomic outcomes:

• Statement 1 is correct: High inflation erodes purchasing power. To maintain parity with other economies, the domestic currency eventually depreciates.
• Statement 2 is correct: Rising domestic prices make locally produced goods more expensive for foreign buyers, making exports less competitive. Meanwhile, the depreciating domestic currency means it takes more local money to buy foreign goods, leading to costlier imports.
• Statement 3 is incorrect: To control inflation, the central bank typically raises interest rates. Consequently, the cost of borrowing increases, rather than decreases.
• Statement 4 is incorrect: Fixed-income investors, like bondholders, are hurt by inflation because it reduces the real purchasing power of their fixed interest returns.

Therefore, only outcomes 1 and 2 are correct.