Class 10, Social Science - Economics
Understanding Economic Development
Chapter 3, Money and Credit
CBSE Sample Questions and NCERT Economics In-text Questions
Question.1: What is money ?
Question.2: What are the different kinds/types/forms of money ?
Question.3: What is the meaning of “double coincidence of wants” ?
Question.4: What is “Barter System” ?
Question.5: Why money is called a medium of exchange?
Question.6: Define - (a) Credit (b) Terms of Credit (c) Collateral (d) Fiat Money (e) Cheque (f) Demand Deposits
Question.7: How does the use of money make it easier to exchange things ?
Question.8: Can you think of some examples of good services being exchanged or wages being paid through barter ?
Question.9: Mr. Salim wants to withdraw Rs 20,000 in cash for making payments. How would he write a cheque to withdraw money ?
Question.10: Why were demand deposits considered as money ?
NCERT In-text Questions
Question.11: What would happen if all the depositors went to ask for their money at the same time ?
Answer: Bank would not be able to give money to the depositors if they all went to ask for their money all at the same time. This is because, banks keep only about 15% and would have already used the balance d portion of their deposits to extend loans.
Question.12: What were the reasons that make Swapna’s situations so risky ? Discuss factors: pesticides, role of money lenders, climate.
Answer: Pest attack, exploitation by money lenders and lack of monsoon are the reasons that make Swapna’s situation so risky.
Pesticides – Pest attack can be controlled by pesticides.
Role of Moneylenders – Generally moneylenders exploit farmers. They charge very high rate of interest and keep them in debt-trap.
Climate – Nearly 60% of our agricultural land area are still un-irrigated. Our farmers heavily depend on rainfall. So, climate plays a vital role in agriculture.
Question.13: Why do lenders ask for collateral while lending ?
Answer: Lenders ask for collateral as security against loans. If the borrower fails to repay the loan, the lender has the right to sell the asset or collateral to recover the payment.
Question.14: Given that a large number of people in our country are poor, does it in any way affect their capacity to borrow?
Answer: Lenders ask for collateral as security against loans. If the borrowers fail to repay the loan, the lender has the right to sell the asset or collateral to recover the loan amount.
Question.15: Fill in the blanks choosing correct option from the brackets:
While taking a loan, borrowers look for easy terms of credit. This means _________ (low/high) interest rate, ______ (easy/tough) conditions for repayment, ____________ (less/more) collateral and documentation requirements.
Answer: low, easy, less.
Question.16: List the various sources of credit in Sonpur.
Answer: The various sources of credit in Sonpur are –
1. village moneylender
2. agricultural trader
Question.17: Why will Arun have higher income from cultivation compared to Shyamal ?
Answer: Arun will have higher income from cultivation compared to Shyamal. This has following reasons:
1. Arun has 7 acres of land compared to 1.5 acres land of Shyamal.
2. Arun received bank loans at an interest rate of only 8.5% per annum. On the other hand Shyamal has received loan at an interest rate of 36% per annum which is much higher than Arun’s.
3. Arun has to repay loan anytime in the next three years while Shyamal will have to repay within 3-4 months.
4. Shyamal received loan under the condition that he will sell the crop to the trader at a lower price than the market price while there no such condition with Arun.
Question.18: Can everyone in Sonepur get credit at a cheap rate ? Who are the people who can ?
Answer: No, everyone in Sonepur can not get credit at a cheap rate. This is because, collateral is required for taking bank loan at cheap rate.
Only those people, who can fulfill collateral and documentation requirements, get credit from bank at a much rate.
Question.19: What are the differences between formal and informal sources of credit ?
Answer: The various differences between formal and informal sources of credit are shown in the following table:
Formal Sources of Credit
Informal Sources of Credit
1. They cover those sources of credit which are registered by the Government and have to follow its rules and regulations e.g. Banks, Cooperatives.
2. The RBI supervises the functioning of formal sources of credit.
3. Apart from profit-making, they have also an objective of social welfare.
4. The rate of interest charged by formal sources is always much lower than that of informal sources.
5. The terms of credit are also fair and reasonable.
1. They include those small and scattered units which are outside the control of the Government e.g. individual moneylenders, traders, employers, etc.
2. There is no organizational supervision or adherence to rules and regulations in the credit extending activities in this sector.
3. Their only motive is to extract profit as much as possible.
4. They charge random and much higher interests in comparison to formal sectors.
5. They impose very tough and sometimes even, unreasonable terms of credit on the borrower.
Question.20: Why should credit at reasonable rates be available for all ?
Answer: Credit should be available at reasonable rates for all as other wise it will not be useful for the borrower. Higher cost of borrowing means a larger part of the earnings of the borrowers is used to repay the loans. Credit given at high interest rate can sometimes result into the amount to be repaid is greater than the income of the borrower. This could lead to increasing debt and debt-trap as we saw for Rama in Sonpur.
Credit is a crucial element in economic activities. It has a major role in the development of the country as it helps people in setting up their business, in increasing their earnings and social status. Therefore, cheap and affordable credit is crucial for the country’s development.
Question.21: Why do you think that the share of formal sector credit is higher for the richer households as compared to the poorer households ?
Answer: Undoubtedly, the share of formal sector credit is for the richer households as compared to the poorer households. It is because; poverty affects poor households’ capacity to borrow. Formal sector credit requires proper documents and collateral as security against loans. But poor people lack in providing such things which affect their capacity to get loans from formal sector.
That is why, the formal sector are sometimes, unwilling to lend to poor households and thus, their share of formal sector credit is lower than the rich households.