FAQs on Key Concepts: Money & Credit - Social Studies (SST) Class 10
|1. What is the difference between money and credit?
Ans. Money is a medium of exchange that is accepted as payment for goods and services. It is used to make purchases, pay bills, and settle debts. Credit, on the other hand, is a form of borrowing in which the borrower receives funds that must be repaid with interest. While money is a tangible asset, credit is a promise to pay in the future.
|2. How does credit affect the economy?
Ans. Credit plays a significant role in the economy by enabling individuals and businesses to finance purchases and investments that they would not otherwise be able to afford. It provides liquidity to the financial system and stimulates economic growth. However, excessive credit can lead to inflation, asset bubbles, and financial crises, as we have seen in the past.
|3. What are the advantages of using credit?
Ans. The advantages of using credit include the ability to finance large purchases such as a home or car, the convenience of paying for goods and services without cash, and the ability to build a credit history that can improve your ability to obtain loans and credit in the future. Credit can also offer rewards and benefits such as cashback, travel points, and discounts.
|4. What are the risks associated with borrowing on credit?
Ans. The risks associated with borrowing on credit include the possibility of falling into debt, paying high interest rates, late fees, and penalties. Borrowers must also be aware of the terms and conditions of their credit agreements, including payment schedules, repayment terms, and penalties for default. Failure to repay debts can result in damage to credit scores, legal action, and repossession of assets.
|5. How can individuals manage their credit effectively?
Ans. Individuals can manage their credit effectively by setting a budget, paying bills on time, monitoring credit reports and scores, avoiding unnecessary debt, and using credit responsibly. They should also be aware of their credit utilization rate, which is the percentage of available credit they are using, and try to keep it below 30%. Finally, they should always read and understand the terms and conditions of any credit agreement before signing.