Class 10 Economics Chapter 3 Question Answers - Understanding Economic Development

Q1. Why are transactions made in money?
Ans. A person holding money can easily exchange it for any commodity or service that he or she might want.

Q2. How is money beneficial in transactions?
Ans. Money is beneficial in transactions because it eliminates the need for double coincidence of wants. It acts as a medium of exchange.

Q3. What is ‘double coincidence of wants’?
Ans. What a person desires to sell is exactly what the other wishes to buy.

Q4. What is barter system?
Ans. When goods are directly exchanged for goods and there is no use of money, it is called barter system.

Q5. How does the use of money make it easier to exchange things? Give an example.
Ans. A person holding money can easily exchange it for any commodity or service that he or she might want.
Example: The shoe manufacturer can sell his shoes (in exchange for money) and then use the money to buy wheat, rather than looking to barter shoes for wheat.

Q6. Why can one not refuse a payment made in rupees in India?
Ans. One cannot refuse a payment made in rupees in India because it is accepted as a medium of exchange. The currency is authorized by the government of the country.

Q7. Highlight the inherent problem in double coincidence of wants.
Ans. The inherent problem in double coincidence of wants is that both parties have to agree to sell and buy each other’s commodities.

Q8. What was used as money in early ages in India?
Ans. In the very early ages, Indians used grains and cattle as money.

Q9. Which metals were used for making coins in India in later stages?
Ans. Gold, Copper, Silver coins were used in later stages for making coins in India.

Q10. What does modern form of money include?
Ans. Modern form of money includes currency—that is paper notes and coins.

Q11. Does modern currency have any use of its own?
Ans. Unlike the things that were used as money earlier, modern currency is not made of precious metal such as gold, silver and copper. And unlike grain and cattle, they are neither of everyday use. The modern currency is without any use of its own.

Q12. Why is modern currency accepted as a medium of exchange?
Ans. It is accepted as a medium of exchange because the currency is authorised by the government of the country.

Q13. In India, who is authorised to issue notes and currency?
Ans. In India, the Reserve Bank of India, which is the central bank of the country, issues currency notes on behalf of the central government.

Q14. What are ‘demand deposits’?
Ans. People deposit their money in the bank as it earns interest. Since the deposits in the bank accounts can be withdrawn on demand, these deposits are called demand deposits.

Q15. What is a ‘cheque’?
Ans. A cheque is a piece of paper that directs the bank to pay a specified amount from the issuer's account to the person named on the cheque.

Q16. What do the banks do with the deposits which they accept from the public?
Ans. (i) Banks keep only a small proportion of their deposits as cash with themselves.
(ii) Major portion of the money deposits are used to extend loans.

Q17. How do banks act as a mediator?
Ans. Banks mediate between those who have surplus funds (depositors) and those who are in need of these funds (the borrowers).

Q18. Why is it difficult for poor to get loan from Banks?
Ans. Absence of collateral is one of the major reasons which prevent the poor from getting bank loans.

Q19. What is the main source of income of the banks, if they forward the depositor’s money to the lender?
Ans. Banks charge a higher rate of interest on loans than what they offer on deposits. The difference between what is charged from borrowers and what is paid to depositors is their main source of income.

Q20. What is ‘credit’?
Ans. Credit (loan) refers to an agreement in which the lender supplies the borrowers with money, goods or services in return for the promise of future payment.