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Class 10 Economics Chapter 3 Previous Year Questions - Money and Credit

2023

Q1: Explain any three functions of the Reserve Bank of India.     [2023, Al 2019]
Ans: The Reserve Bank of India has many important roles that affect the common public:

  • RBI monitors the balance kept by the bank for day to day transactions.
  • RBI monitors the banking activity, particularly the loan-giving activity of the banks. It ensures that the banks give loans to the priority sector like agriculture and not just to profit-making sectors.
  • The RBI undertakes the responsibility of controlling credit created by the commercial banks. RBI uses quantitative and qualitative techniques to control and regulate the credit flow. This includes interest rates and the percentage of loans to a sector.
  • The RBI gives guidelines to the bank about setting up the terms of credit that the bank may decide upon for the borrowers. 

Q2: Explain the role of banks with regard to money which they accept from the public.    [2023]
Ans: Banks play an important role regarding the money they accept from the public

  • They keep the money of the public in their safe custody.
  • They give interest on the deposited money to the public.
  • Banks use the major portion of deposits to extend loans. These loans are then recovered with interest.
  • It is easy for individuals to get credit who have savings and a current account in the banks. 

Q3: "Cheap and affordable credit is crucial for the country’s development’.” Justify the statement.   [2023]
Ans: Cheap and affordable credit is crucial for a country's development due to the following factors:

  • Increased lending leads to higher incomes, encouraging people to invest in agriculture, business, and small-scale industries.
  • Cheap credit leaves more income with borrowers for reinvestment, accelerating economic activity.
  • Affordable credit allows weaker sections of society to access formal lending, reducing exploitation by informal moneylenders.
  • It helps break the cycle of debt and promotes sustainable economic activity, enabling borrowers to invest in better technology and become more competitive.

Q4: Justify the role of 'Self Help Groups’ in the rural economy.  [2023]
Ans: Self Help Groups (SHGs) play a significant role in the rural economy due to the following reasons:

  • SHGs organize the rural poor, especially women, and help them collect savings and extend loans to members.
  • By charging lower interest rates compared to moneylenders, SHGs provide affordable credit to the rural poor.
  • SHGs promote self-employment opportunities by enabling members to access loans for starting small businesses or agricultural activities.
  • These groups act as building blocks for the rural poor, as the entire group is responsible for loan repayment. This collective responsibility ensures timely repayment and reduces the risk of default.
  • SHGs contribute to poverty reduction, women empowerment, and overall economic development in rural areas.

2022

Q1: Read the Information given below and select the correct option.
Rohan has taken a loan of Rs. 5 lakhs from the bank to purchase a house on 12% rate of interest. He has to submit papers of new house and salary record to the bank. What is this process called as?
(a) Interest Rate
(b) Collateral
(c) Principal Amount
(d) Installments          
(2022)
Ans:
(b)
This process is called as col lateral.

Q2: Explain the role of 5elf-Help Groups (SHGs) in the rural society.     (2022) 
Ans:
Self - Hel p Groups (SHGs) have helped borrowers to borrow money without collateral in the following ways:
(i) Self Help Groups have organised rural poor especially women in collecting their money and in extending loans to its members.
(ii) SHG charge less rate of interest as compared with any other forms of rural banking or even those charged by moneylenders.
(iii) These groups gradually can seek loans from bank so as to create employment opportunities for its members,
(iv) These 5HGs have emerged as building blocks of the rural poor as it is the group as a whole which is responsible of the repayment of the loan. In case of non-repayment, it is taken up in a serious manner by the group members.
(v) Banks offer money to women organised in these groups without any collateral. Similarly, members of these groups can get loans when required which is repayable in small installments.

Q3: Explain the significance of the Reserve Bank of India in the Indian economy.    (2022)
Ans:
The Reserve Bank of India has many important roles that affects the common public
(a) RBI monitors the balance kept by the bank for day-today transactions.
(b) RBI monitors the banking activity, particularly the loan giving activity of the banks. It ensures that the banks give loans to priority sector like agriculture and not just to profit making sectors.
(c) The RBI undertakes the responsibility of controlling credit created by the commercial banks.
(d) RBI uses quantitative and qualitative techniques to control and regulate the credit flow. This includes interest rates and percentage of loans to a sector.
(e) The RBI gives guidelines to the bank about setting up the terms of credit that the bank may decide for the borrowers.

2021

Q1: Why are transactions made in money? Explain.     [Term-II,2021-22 C]
Ans: Transactions are made in money because money serves as a universally accepted medium of exchange. It is a convenient and widely recognized way to facilitate the exchange of goods and services. Money eliminates the need for a direct barter system where individuals would have to exchange goods or services directly with each other, which can be inefficient and time-consuming. With money, individuals can easily exchange it for any commodity or service they desire, making transactions more efficient and convenient.
Q2: How does a bank work as a key component of the financial system? Explain.    [Term-II, 2021-22]
Ans: Banks play a vital role in the financial system as they act as intermediaries between depositors and borrowers. They collect deposits from individuals and businesses who have surplus funds and provide loans to those who are in need of funds. This process of mobilizing funds from depositors and lending them to borrowers helps in the efficient allocation of resources in the economy.
Q3: Analyse the situation in which credit pushes the borrower into a situation from which recovery is painful.    [Term-II, 2021-22]
Ans: Credit can be a useful tool for individuals and businesses to meet their financial needs and invest in productive activities. However, in certain situations, credit can push borrowers into a situation from which recovery becomes painful.
Here are some scenarios where this can happen:

  • High-interest rates: Borrowing from sources that charge exorbitantly high-interest rates can lead to a debt trap. If the borrower is unable to repay the loan along with the high-interest charges, the debt keeps mounting, making it difficult to recover financially.
  • Overborrowing: Taking on excessive debt beyond one's capacity to repay can lead to financial distress. If the borrower's income or cash flow is insufficient to meet the repayment obligations, they may struggle to make timely payments, leading to additional penalties and fees.
  • Lack of income stability: If the borrower's income is irregular or unstable, it becomes challenging to manage debt repayments. In situations where there is a loss of income or job, the borrower may find it difficult to meet their financial obligations, leading to a downward spiral of debt and financial hardship.
  • Inadequate financial planning: Borrowing without proper financial planning and budgeting can result in difficulties in repaying the debt. If borrowers do not have a clear repayment plan or fail to account for unexpected expenses, they may find themselves overwhelmed by debt obligations.
  • Dependency on informal credit: Relying heavily on informal sources of credit, such as moneylenders or loan sharks, can lead to exploitative lending practices. These lenders often charge exorbitant interest rates and impose harsh repayment terms, making it extremely challenging for borrowers to escape the debt cycle.

In such situations, borrowers may struggle to recover financially, as the burden of debt becomes overwhelming. It is important for individuals and businesses to borrow responsibly, assess their repayment capacity, and seek credit from reliable and regulated sources to avoid falling into a painful debt situation.
Q4: Read the following source and answer the questions that follow:    [Term-II,2021-22]
A House Loan
Megha has taken a loan of Rs. 5 lakhs from the bank to purchase a house. The annual interest rate on the loan is 12 per cent and the loan is to be repaid in 10 years in monthly installments. Megha had to submit to the bank, documents showing her employment records and salary before the bank agreed to give her the loan. The bank retained as collateral the papers of the new house, which will be returned to Megha only when she repays the entire loan with interest.

(i) From which source of credit Megha has taken loan?
Ans: Megha has taken a loan from a formal source of credit, which is the bank.

(ii) Explain the terms of credit given in the source.
Ans:
Terms of credit given in the source are Document required - Salary slip and employment record. Interest rate - 2% per annum Mode of repayment - Monthly instalment Collateral - New house papers

Q5: Dhananjay is a government employee and belongs to a rich household, whereas Raju is a construction worker and comes from a poor rural household. Both are in need and wish to take a loan. Create a list of argument explaining who between the two would successfully be able to arrange money from a formal source. Why?    [Term-II,2021-22 C, 2016]
Ans: Dhananjay will be able to get a loan from a formal source.
Arguments:

  • Banks are not present everywhere in rural India. Even when they are present, getting a loan from a bank is much more difficult than taking a loan from informal sources.
  • Bank loans require proper documents and collateral. Absence of collateral is one of the major reasons which prevent the poor from getting bank loans.
  • Informal lenders such as moneylenders, on the other hand, know the borrowers personally and hence, are often willing to give a loan without collateral.

Q6: "The use of money spans a very large part of our everyday life". Support the statement.   [2021 C]
Ans: In everyday lives, we use money to fulfill our requirement in different ways:

  • To buy goods and services like in market, money can be used to buy clothes, vegetables, etc.
  • To deposit in banks so that money can be saved and used for future use. For example, if a laborer deposits his monthly salary in his bank account, then he can use it in installments during the entire month.
  • As a store value. For instance, we cannot store perishable goods like milk, grain, etc. to exchange, but we can keep money for future use. 

Q7: How are formal sources of credit different from informal sources? Explain with an example.   [Term-ll, 2021-22]
Ans: Formal sources of credit, such as banks and cooperatives, differ from informal sources in the following ways:

  • Regulation: Formal sources are regulated by authorities like the Reserve Bank of India, ensuring transparency and fair practices. Informal sources operate outside regulatory frameworks.
  • Interest Rates: Formal sources generally offer lower interest rates compared to informal sources, which often charge higher rates.
  • Collateral Requirements: Formal sources may require collateral or security for loans, while informal sources may not.
  • Example: A farmer who needs a loan can approach a bank as a formal source of credit. The bank will follow a regulated process, charge an interest rate based on norms, and may require collateral. In contrast, an informal source like a local moneylender may provide a loan without formal documentation, charge high-interest rates, and not demand collateral.

Q8: Explain with an example the role of credit for development.    [Term-ll, 2021-22]
Ans: Credit plays a vital role in development by providing funds for various purposes. For example, consider Salim, a small-scale entrepreneur. He takes a loan to buy raw materials and equipment for his business. With the credit, he can meet ongoing expenses, complete production on time, and increase his earnings. This shows how credit enables individuals to invest, earn income, and contribute to economic development.

2020

Q1: Krishna is working in a neighbouring field with very less wages. Expenses on sudden illnesses or functions in the family are also met through loans. The landowner charges an interest rate of 5 per cent per month. At present she owes the landowner Rs. 5,000.
Analyse the credit arrangements given above.   [2020]
Ans: Credit arrangement-informal sources of credit / No intervention of government in controlling the credit activities carried out by informal sources. 

Q2: Self-Help Groups are the building blocks of organisation of the rural poor. Suggest any three ways to make them popular for social issues.    [2020 C]
Ans: Ways to make SHGs popular for social issues:

  • Government should make proper provisions to provide funding to SHGs for various social programs.
  • SHG members can resolve family's internal issues like domestic violence faced by women and provide financial assistance for marriages.
  • SHGs can be given a separate fund for pregnant women's health, which can provide proper diet and medical requirements.

Q3: "The Reserve Bank of India supervises the functioning of formal sources of loans." Support the statement with examples.     [2020]
Ans: The Reserve Bank of India (RBI) supervises the functioning of formal sources of loans in the following ways:

  • It monitors the balance kept by banks for day-to-day transactions.
  • It checks that the banks give loans not just to profit-making businesses and traders but also to small borrowers.
  • Periodically, banks have to give details about lenders, borrowers, and interest rates to RBI. It is necessary for securing public welfare. It avoids the banks to run the business with a profit motive only. It also keeps a check on the interest rate of credit facilities provided by banks. RBI makes sure that the loans from the banks are affordable and cheap. 

Q4: Why do lenders ask for collateral while lending? Explain.   [2020, Foreign 2014]
Ans: Lenders ask for collateral while lending because:

  • It works as a guarantee to a lender until the loan is repaid.
  • If the borrower fails to repay the loan, the lender has the right to sell the asset or collateral to obtain payment.
  • It reduces exposure in order to do more business with each other when credit limits are under pressure. 

Q5: How do demand deposits have the essential features of money? Explain.    [2020]
Ans: Demand deposits are considered as money because:

  • The facility of cheques against demand deposits makes it possible to directly settle payments without the use of cash. Since demand deposits are accepted widely as a means of payment, along with currency, they constitute money in the modern economy.
  • Banks accept the deposits and also pay an interest rate on the deposits.
  • In this way, people’s money is safe with the banks and it earns an interest. 

Q6: "Bank plays an important role in the economic development of the country”. Support the statement with an example.    [2020]
Ans: Banks play a significant role in the economic development of a country. For example, banks help in capital formation by mobilizing small savings and making them available for productive purposes. They extend loans to different industries, supporting their development. Additionally, banks facilitate credit creation, which leads to increased production, employment, and overall economic growth. The role of banks in providing financial services and promoting investment contributes to the development of the country.
Q7: “Credit sometimes pushes the borrower into a situation from which recovery is very painful”. Support the statement with examples.    [2020]
Ans: Credit can sometimes lead borrowers into a difficult situation. For example, consider a farmer who takes a loan from a moneylender to meet cultivation expenses. Unfortunately, the crops fail due to pests, and the farmer is unable to repay the loan. The debt grows with interest, and the next year, the farmer takes another loan. While he has a normal crop that year, his earnings are not enough to pay the earlier loan. To repay the loan, he is forced to sell a part of his land. This example illustrates how credit can push borrowers into a situation where recovery becomes painful, trapping them in a cycle of debt.
Q8: "Self Help Groups help borrowers to overcome the problem of lack of collateral." Examine the statement.      [2020, Delhi 2017]
Ans: The statement is true as Self Help Groups (SHGs) offer loans to members without the requirement of collateral. SHGs operate on the basis of trust and collective responsibility. They pool the savings of members and use it to extend loans to individuals within the group. Since the loans are given within the group, there is no need for traditional collateral. Instead, the group ensures repayment through regular meetings, monitoring, and collective responsibility. This feature of SHGs makes credit accessible to individuals who do not possess collateral, enabling them to overcome the problem and access financial support for various purposes. 

2019

Q1: Why are demand deposits considered as money?    [AI2019]
Ans: Demand deposits are considered as money because they can be easily withdrawn when required and used for making payments. Demand deposits refer to funds held in checking accounts at banks, which can be accessed and used for transactions through various means such as checks, debit cards, or online transfers. These deposits are considered as money in the modern economy because they are readily available for use as a medium of exchange.
Q2: How is 'double coincidence of wants' not appreciable in the contemporary scenario?    [2019C, Delhi 2017]
Ans: In the contemporary scenario, the concept of 'double coincidence of wants' is not appreciable because it is often difficult to find a direct match between what one person wants to sell and what another person wants to buy. 'Double coincidence of wants' refers to a situation where two individuals have goods or services that the other person desires, creating a mutual exchange. However, in a complex and diverse economy, it is impractical to expect such a direct match to occur in every transaction. Money eliminates the need for this double coincidence by acting as an intermediate medium of exchange.
Q3: Why is money called a medium of exchange?   [AI2019]
OR
How does money act as medium of exchange?    [2015]

Ans: Money is called a medium of exchange because it facilitates the exchange process between buyers and sellers. Money acts as an intermediary in transactions, allowing individuals to buy goods and services by exchanging money for them. It serves as a universally accepted medium that is widely recognized and valued for its purchasing power. By using money as a medium of exchange, people can easily acquire the goods and services they desire without the need for direct bartering or finding a double coincidence of wants. 

Q4: Describe the bad effects of informal sources of credit on borrowers.   [Delhi 2019]
Ans: The informal sector consists of money lenders, traders, employers, friends, relatives, merchants, and landlords. There is no organization that supervises the credit activities of lenders in the informal sector.

  • The informal lenders usually charge a very high rate of interest. A higher cost of borrowing is often detrimental to the borrower. It usually results in a debt trap for the borrower. The borrower is seldom able to escape the never-ending cycle of loan repayment.
  • Most loans from informal lenders carry a very high-interest rate and have other stringent conditions. They do little to increase the income of the borrowers.
  • It has been observed that the loan recovery mechanics in the informal sector are particularly harsh in cases of loan repayment default. There have been cases of selling of properties at throwaway prices and total loss of belongings and even suicides.

Q5: Explain the three important terms of credit.    [Al 2019]
Ans: The three important terms of credit are:

  • Interest Rate: It is the interest that the borrower pays to the bank. An interest component is added to the principal that the borrower pays to the bank as loan payment in installments.
  • Collateral: An asset which is owned by the borrower and is used as a guarantee to a lender until the loan is repaid is called collateral. Land, house, vehicle, livestock, deposits with banks, insurance policy, gold, etc., are examples of assets that can be kept as collateral. If the borrower fails to repay the loan, the lender reserves the right to sell the collateral to obtain payment.
  • Documentation: The transaction between the lender and the borrower is put on record by documenting it. It includes the rate of interest, tenure, collateral, and mode of repayment. The terms of credit vary from one loan agreement to another and also on the nature of the lender and the borrower. 

Q6: Explain any three situations in which credit helps in the development of agriculturists.    [2019C]
Ans: Three situations in which credit helps in the development of agriculturists:

  • The gestation period between sowing to selling agricultural produce is very long. In such situations, credit is necessary.
  • Indian farmers require credit to meet their short-term needs like purchasing seeds, fertilizers, paying wages to hire workers, etc.
  • For big farmers, credit is required for buying harvest machines, etc.

Q7: Describe the importance of formal sources of credit in economic development.    [Delhi 2019]
Ans: The formal source of credit comprises of banks and cooperative societies. The Reserve Bank of India supervises the functioning of formal sources of loans.
The importance of formal sources of credit in economic development are:

  • Even though collateral and paperwork are needed to secure a loan from banks, the interest rates here are lesser than informal sources.
  • The formal sources of credit are part of the greater national economy. Hence even small borrowers should try to avail this facility and not go for informal sources of borrowing.
  • The role of formal sources of credit has been very great, particularly for financing large developmental projects and various business projects in the private sector and the public sector.

Q8: Describe the vital and positive role of credit with examples.    [2019, Delhi 2016]
Ans: Credit plays a vital and positive role in various aspects. It enables individuals from different backgrounds to set up businesses, increase their income, and support their families. For example, someone may take a loan to start a small business, which creates employment opportunities and contributes to economic growth. Credit also helps individuals improve their living standards, such as using a loan to build a house and escape monthly rent expenses. Furthermore, credit allows people to invest in education or vocational training, opening up better career prospects and improving their overall well-being. 

2018 & Rest of Years Questions

Q1: Give any two examples of informal sector of credit.    [2018]
Ans: Two examples of the informal sector of credit are moneylenders and relatives/friends who provide loans.

Q2: Explain any three loan activities of banks in India.    [Al 2017]

Ans: 

  • Banks provide loans for various economic activities to people or organizations.
  • Banks keep only a small proportion of the deposits with them as cash, to meet daily payment demands. The deposits are used to meet the loan requirements of the people.
  • Banks intermediates between those who have surplus funds and those who are in need of these funds. Banks offer less interest on deposits than what they charge on loans.

Q3: "Banks are an efficient medium of exchange." Support the statement with arguments.   [Delhi 2017]
Ans: 

  • People deposit their money with banks by opening a bank account. Banks keep the money safe and provide interest on the deposited amount.
  • The deposited money can be withdrawn from banks as and when required on demand.
  • Banks also facilitate easy transfer of money through cheques, demand drafts, and internet banking from one account to another in the same or any other bank.
  • Banks keep only 15% of their total cash deposits to meet the everyday withdrawal demands of their customers. The major portion of the remaining deposits is used to give loans to people at a specific rate of interest. Thus, we see that money is very efficiently exchanged between various people.

Q4: Illustrate with examples the role of 'loan' in 'business'.    [Foreign 2017]
Ans: Loan or credit plays a crucial role in business. By sanctioning loans to developing industries and trade, banks provide them with the necessary aid for functioning, developing, and expanding business. This leads to an increase in production, profits, and employment.
For this reason, it is important that the formal sector gives out more loans so that borrowers are not duped by money lenders and can ultimately contribute to national development. 

Q5: Review any three merits and any two demerits of 'Formal sector of credit' in India.    [Foreign 2017]

Ans: Merits of the formal sector of credit in India:

  • Regulation: The formal sector is regulated by the Reserve Bank of India, ensuring fair practices and protection for borrowers.
  • Lower Interest Rates: Formal sources generally offer loans at lower interest rates compared to informal sources, reducing the burden on borrowers.
  • Accessibility: The formal sector provides credit to a wide range of individuals, including both big businessmen and small borrowers.

Demerits of the formal sector of credit in India:

  • Lengthy Process: Getting a loan from formal sources often involves a lengthy and bureaucratic process, leading to delays in loan disbursement.
  • Collateral Requirement: Formal sources may require collateral for loans, which can be a barrier for individuals who do not possess valuable assets.

Q6: How is money beneficial in transactions?    [Foreign 2017]
Ans: Money is beneficial in transactions because it eliminates the inconvenience of the double coincidence of wants. In a barter system, individuals would have to find someone who has what they want and is willing to accept what they have to offer in exchange. This can be inefficient and time-consuming. However, with the introduction of money, people can simply exchange their goods or services for money and then use that money to purchase whatever they desire from anyone willing to accept it. Money provides a common medium of exchange that simplifies and accelerates transactions.
Q7: Why one cannot refuse a payment made in rupees in India?   [2016]
Ans: One cannot refuse a payment made in rupees in India because the Indian rupee is the authorized and accepted medium of exchange in the country. The Government of India has established the Indian rupee as the official currency, and it is legally recognized as a valid form of payment. Therefore, individuals and businesses are required to accept payments made in rupees, and refusal to do so would be in violation of the accepted legal tender.
Q8: How does money eliminate the need for double coincidence?      [2016]
Ans: Money eliminates the need for double coincidence by providing a crucial intermediate step in transactions. In a barter system, individuals would have to find someone who not only wants what they have to offer but also has what they desire in return. This double coincidence can be challenging to achieve. However, with the introduction of money, individuals can simply sell their goods or services for money and then use that money to purchase any other desired commodity available in the market. Money acts as a universally accepted medium of exchange, allowing individuals to acquire what they need without the requirement of a direct match between their wants and the wants of others.
Q9: How do the deposits with banks become their source of income?      [Delhi 2016]
Ans: When we deposit our money in the bank we get an interest on it. However the bank uses that money to give loan to people. The bank charges an interest on its loan at a higher rate than what is paid to the depositors. Thus, the banks earn money from the deposits.
Q10: Why do banks maintain cash reserve?    [2016]
Ans: Banks maintain cash reserve to ensure smooth daily withdrawal by depositors.
Q11: Prove with an argument that there is a great need to expand formal sources of credit in rural India.     [2016]
Ans: The expansion of formal sources of credit in rural India is crucial because it ensures that the rural poor have access to credit at reasonable interest rates. This helps them meet their financial needs without falling into the trap of high-interest informal loans. Additionally, formal sources of credit provide better regulation and supervision, ensuring fair lending practices.
Q12: Why is the supervision of the functioning of formal sources of loans necessary?    [2016]
Ans: The supervision of formal sources of loans is necessary to ensure that these institutions provide loans not only to the rich but also to the poor. It helps in preventing exploitation and ensures that the banks follow the proper procedures and regulations set by the Reserve Bank of India (RBI).
Q13: Why do farmers require credit?      [2016]
Ans: Farmers require credit to finance their agricultural activities. This credit is used to purchase agricultural inputs such as seeds, fertilizers, pesticides, and machinery. It helps farmers to manage their expenses and invest in their farming operations for better productivity.

Q14: How can money be used to easily exchange it for goods or services? Give examples to explain.  [Delhi 2016]

Ans: Money acts as a medium of exchange itself for goods and services. A person holding money can easily exchange it for any commodity or service that he or she might want. Everyone prefers to receive payments in money and exchange the money for things they want.
For example, a shoemaker wants to sell shoes in the market and buy wheat. The shoemaker will first exchange shoes for money and then exchange the money for wheat. If the shoemaker had to directly exchange shoes for wheat without the use of money, he would have to look for a wheat-growing farmer who not only wants to sell wheat but also wants to buy the shoe in exchange. Both the parties have to agree to sell and buy each other's commodities. This process is very difficult, time-consuming, and unhealthy.
Q15: How is money transferred from one bank account to another bank account? Explain with an example.    [Foreign 2016]
Ans: If a person has to make a payment to his or her friend and writes a cheque for a specific amount, this means that the person instructs his bank to pay this amount to his friend. His friend takes this cheque and deposits it in his account in the bank. This said amount is transferred from one bank account to another bank account.
Q16: Mention three points of difference between formal sector and informal sector loans.   [2016]
Ans: Formal sector loans:

  • Loans from banks and cooperatives need collateral.
  • Under the supervision of the Reserve Bank of India.
  • Reasonable rates of interest.

Informal sector loans:

  • Loans from moneylenders, relatives, friends, traders, etc., do not need collateral.
  • No supervision of any institution.
  • Very high rates of interest.

Q17: How is the concept of Self Help Groups important for poor people? Give your viewpoint.  [Foreign 2016]

Ans: Self Help Groups are known as SHGs:

  • These are mainly created by the poor, often females of rural areas, for their own benefits.
  • In this, all members deposit their monthly savings to the leader.
  • This creates self-employment for the members.
  • If any member needs money for domestic work such as renovation of a house, buying fertilizers, or agricultural equipment, he/she can borrow it from the group.
  • Members can get timely loans at reasonable interest and without any collateral and documentation. It operates on mutual trust.

Q18: Poor households still depend on informal sources of credit". Support the statement with examples.    [2016]
Ans:

  • Banks are not present everywhere in rural India, whereas informal sources are easily available everywhere.
  • Getting a loan from a bank is difficult for poor people than taking a loan from informal resources because bank loans require proper documents and collateral.
  • Moneylenders provide loans to poor people without any collateral.
  • Formal sources provide loans only for productive purposes, whereas informal sources provide credit for productive and non-productive purposes.
  • Other informal sources of credit are friends and relatives, or traders and landlords, who know the borrowers personally and therefore do not demand collateral.

Q19: "The credit activities of the informal sector should be discouraged." Support the statement with arguments.    [2016]

Ans:

  • 85% of loans taken by poor households in urban areas are from informal sources.
  • Informal lenders charge very high interest on their loans.
  • There are no boundaries and restrictions.
  • The higher cost of borrowing means a larger part of the earnings of the borrowers is used to repay the loans.
  • In certain cases, the high interest rate for borrowing can mean that the amount to be repaid is greater than the income of the borrower.
  • This could lead to increasing debt and debt trap, therefore the credit activities of the informal sector should be discouraged.

Q20: What are demand deposits? Explain any three features of it.    [2016]

Ans: Demand deposits refer to the deposits made by individuals in banks that can be withdrawn on demand.
Three features of demand deposits are:

  • Banks pay interest on these deposits, providing a safe place for people to keep their money.
  • Cheques can be issued against demand deposits, allowing for easy and convenient transactions without the need for cash.
  • Demand deposits, along with currency, constitute the money supply in the modern economy.

Q21: How can formal sector loans be made beneficial for poor farmers and workers? Suggest any five measures.    [AI 2016]

Ans: Formal sector loans can be made beneficial for poor farmers and workers through the following measures:

  • Creating awareness: Educating farmers and workers about the availability and benefits of formal sector loans can encourage them to utilize these resources.
  • Simplifying the loan process: Streamlining loan application procedures and reducing paperwork can make it easier for farmers and workers to access formal sector loans.
  • Expanding banking services: Opening more branches of nationalized banks and cooperatives in rural areas can increase the accessibility of formal sector loans to farmers and workers.
  • Increasing loan facilities: Banks and cooperatives should increase the availability of loans to cater to the demand of poor farmers and workers.
  • Reducing interest rates: Lowering the interest rates for formal sector loans can make them more affordable for poor farmers and workers, reducing their financial burden.
The document Class 10 Economics Chapter 3 Previous Year Questions - Money and Credit is a part of the Class 10 Course Social Studies (SST) Class 10.
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FAQs on Class 10 Economics Chapter 3 Previous Year Questions - Money and Credit

1. What is the concept of money?
Ans. Money is a medium of exchange that is widely accepted in transactions for goods and services. It is a form of currency that allows individuals to trade and conduct economic activities efficiently.
2. How does credit work?
Ans. Credit is a financial arrangement in which a lender provides funds to a borrower with the understanding that the borrower will repay the amount in the future, usually with interest. It allows individuals and businesses to access funds they may not have immediately, enabling them to make purchases or investments.
3. What is the role of banks in money and credit?
Ans. Banks play a crucial role in the money and credit system. They accept deposits from individuals and businesses and provide loans and credit to those in need. Banks also facilitate transactions, provide financial services, and act as intermediaries between savers and borrowers.
4. What are the different types of credit?
Ans. There are various types of credit, including personal loans, credit cards, mortgages, student loans, and business loans. Each type of credit serves specific purposes and has different terms and conditions.
5. How does the concept of credit affect the economy?
Ans. The concept of credit has a significant impact on the economy. It promotes economic growth by providing individuals and businesses with access to funds that can be used for investment and consumption. However, excessive borrowing and high levels of debt can lead to financial instability and economic downturns.
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