Class 8 Exam > Class 8 Notes > Money and Credit : NCERT In-text & CBSE Sample Questions
Money and Credit : NCERT In-text & CBSE Sample Questions - Class 8 PDF Download
Understanding Economic Development
Chapter 3, MONEY AND CREDIT
CBSE Sample Questions and NCERT Economics In-text Questions
Question.1: What is money ?
Answer: Money is a medium of exchange and measure of value.
Question.2: What are the different kinds/types/forms of money ?
Answer: Money can be classified into the following types or forms:
(i) Coins such as gold, silver, copper coins. (ii) Paper notes, (iii) Fiat money, (iii) Credit money or deposits with Banks, and (iv) Commodity money in the form of grains, cattle etc.
Question.3: What is the meaning of “double coincidence of wants” ?
Answer: When two parties agree to sell and buy each others commodities, this situation is known as double coincidence of wants. That is, what a person desires to sell is exactly what the other wishes to buy. In a barter system, where goods are directly exchanged for another type of goods or service without the use of money, double coincidence of wants is a must.
Question.4: What is “Barter System” ?
Answer: It is the system in which one type of goods or service is directly exchanged for another type of goods or service without the use of money. Double coincidence of wants is an essential feature of this system. Before the evolution of money, exchange was done through this system.
Question.5: Why money is called a medium of exchange?
Answer: Since money acts as an intermediate in the exchange process, it 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
Answer:
Credit : Credit or Loan refers to an agreement in which the lender supplies the borrower with money, goods or services in return for the promise of future payment. Credit is a crucial element in economic life and plays an important role in the development of the country.
Terms of Credit : The interest rate, collateral, documentation requirement and the mode of payment are the various factors which together comprise the “Terms of Credit”.
Collateral : Collateral is an asset that the borrower owns and uses this as a guarantee to a lender until the loan is repaid. Collaterals can be land, building, vehicle, stocks, cattle, bank deposits etc.
Fiat Money : The ‘Fiat Money’ is meant for that money which serves as money on the basis of fiat or order of government.
Cheque : A cheque is a paper instructing the bank to pay a specific amount from the person’s account to the person in whose name the cheque has been made.
Demand Deposits : The deposits in the bank account which can be withdrawn on demand are known as ‘Demand Deposits’.
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Question.7: How does the use of money make it easier to exchange things ?
Answer: As we know, in a barter system where goods are directly exchanged without the use of money, double coincidence of wants is a necessary condition. By serving as a medium of exchange, money removes the need for double coincidence of wants and the difficulties associated with barter system. In this way, the use of money makes it easier to exchange things.
Question.8: Can you think of some examples of good services being exchanged or wages being paid through barter ?
Answer: Yes, in rural areas generally crops and food-grains are directly exchanged without the use of money. Similarly, agricultural labourers are normally paid not in cash but in kind, e.g. 5kg. wheat or rice per day.
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Question.9: Mr. Salim wants to withdraw Rs 20,000 in cash for making payments. How would he write a cheque to withdraw money ?
Answer: Mr.Salim would write date on the space given. He would instruct the bank to pay ‘Self’ and also write ‘Twenty thousands only’ further to Rupees and fill up the amount and account number e.g. ‘20000/-‘etc. at the proper spaces as mentioned over the cheque. Then he would have to put his signature on the right hand lower side of the cheque. Now he would submit it on the counter of the bank.
Question.10: Why were demand deposits considered as money ?
Answer: Since demand deposits are accepted widely as a means of payment along with currency, they are also considered as money in the modern economy. See Answers of Q. Nos. 1-10
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.
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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.
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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
3. landowner-employers.
4. bank.
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.
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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:
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Formal Sources of Credit
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Informal Sources of Credit
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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.
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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.
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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.
FAQs on Money and Credit : NCERT In-text & CBSE Sample Questions - Class 8
| 1. What is the concept of credit explained in the article? |  |
Ans. The article explains that credit refers to borrowing money and paying it back with interest over a period of time. It also highlights the importance of credit in modern economies and its role in facilitating economic growth.
| 2. How does money differ from credit? | |
Ans. Money is a medium of exchange that is accepted in transactions, while credit involves borrowing money and paying it back with interest over a period of time. Money is a tangible asset, while credit is not. Credit can be used to purchase goods and services without immediate payment, while money must be paid upfront.
| 3. What is collateral and why is it important in credit transactions? | |
Ans. Collateral is an asset that a borrower pledges as security for a loan. It is important in credit transactions as it reduces the lender's risk of default. If the borrower is unable to repay the loan, the lender can seize the collateral to recover the amount owed.
| 4. How does the availability of credit impact economic growth? | |
Ans. The availability of credit can impact economic growth positively or negatively depending on how it is used. If credit is used to finance productive investments, such as building factories or developing new technology, it can stimulate economic growth. However, if credit is used to finance consumption or speculative investments, it can lead to economic instability and crises.
| 5. What role does the central bank play in regulating credit in an economy? | |
Ans. The central bank of a country is responsible for regulating the supply of credit in an economy. It does this by setting interest rates, reserve requirements, and other monetary policy tools. By regulating credit, the central bank can influence economic growth, inflation rates, and the stability of the financial system.
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