Class 10 Economics ‘Money and Credit’ Chapter Question and Answers (NCERT Solutions)

Question and Answers of the chapter “Money and Credit” NCERT exercises from Class 10 NCERT Economics Textbook. The NCERT solutions given here include intext-questions and chapter end exercises. Click here for more study resources.

Intext-Question and Answers

Work These Out: (Page 40)

1. How does the use of money make it easier to exchange things?
   • Money removes the need for a double coincidence of wants by acting as a common medium. It allows individuals to sell goods or services for money and use that money to buy what they need from others.
2. Examples of Barter Exchange:
   • Goods: Farmers exchanging rice for vegetables.
   • Services: A tailor stitching clothes in return for food grains.
   • Wages: Laborers paid with food or other essential goods instead of money.

Work These Out: (Page 42)

1. How would M. Salim write a cheque to withdraw Rs 20,000 in cash?
   • M. Salim would write a cheque as follows:
     • Mention the date.
     • Write “Self” in the payee section.
     • Write the amount in both words and figures (e.g., Twenty Thousand Rupees only / ₹20,000).
     • Sign the cheque at the bottom-right corner.
     • Submit it to the bank to withdraw cash.
2. Tick the correct answer:
   • After the transaction between Salim and Prem:
     • (ii) Salim’s balance in his bank account decreases, and Prem’s balance increases.
3. Why are demand deposits considered as money?
   • Demand deposits are considered money because:
     • They can be withdrawn on demand.
     • They are widely accepted as a medium of exchange.
     • Payments can be made directly through cheques, eliminating the need for cash.

What would happen if all the depositors went to ask for their money at the same time?

• This situation, known as a bank run, would lead to a financial crisis.
• Banks would be unable to fulfill all withdrawal requests due to their practice of lending out a majority of the deposited funds.

Work These Out (Page 44)

1. Fill the Table:

2. Supposing Salim continues to get orders from traders, what would be his position after 6 years?

• If Salim continues to receive orders and manages his finances responsibly:
  • He is likely to expand his business, hire more workers, and increase profits.
  • Regular credit access could improve his production capacity and financial stability.
  • He may diversify into larger markets, further boosting his income.

3. What are the reasons that make Swapna’s situation so risky?

• Pesticides:
  • Expensive pesticides failed to protect the crops, worsening her financial burden.
• Role of Moneylenders:
  • High-interest loans from moneylenders trapped her in a cycle of debt.
  • Lack of formal credit options increased her dependence on exploitative lenders.
• Climate:
  • Unpredictable weather and pests caused crop failure, leading to financial loss.
• Other Factors:
  • Absence of crop insurance or government support added to her vulnerability.

Work These Out (Page 45)

1. Why do lenders ask for collateral while lending?

• Collateral ensures that lenders have a way to recover their money if the borrower defaults.
• It reduces the risk of lending by providing security for the loan.

2. Does poverty affect borrowing capacity?

• Yes, poverty significantly affects the ability of individuals to borrow:
  • Poor individuals often lack collateral, making them ineligible for formal loans.
  • They may depend on informal credit sources, which often charge high-interest rates and impose exploitative terms.

3. Fill in the Blanks:

• While taking a loan, borrowers look for low interest rate, easy conditions for repayment, less collateral, and documentation requirements.

Megha’s Loan Details:

Work These Out (Page 47)

Answers: Variety of Credit Arrangements (Page 47)

1. List the various sources of credit in Sonpur.

• Village moneylender
• Agricultural trader
• Bank
• Medium landowner (employer)
• Cooperative society (Krishak Cooperative)

2. Underline the various uses of credit in Sonpur.

• Cultivation (buying farm inputs like seeds, fertilizers, etc.)
• Daily expenses during unemployment periods
• Expenses for sudden illnesses or family functions
• Purchase of agricultural implements
• Storing crops in cold storage
• Construction of houses
• Agricultural trade
• Fishery loans

3. Compare the terms of credit for the small farmer, medium farmer, and landless agricultural worker in Sonpur.

4. Why will Arun have a higher income from cultivation compared to Shyamal?

• Arun receives a bank loan at a low interest rate (8.5% per annum) compared to Shyamal’s 36% per annum.
• Arun can store his crops in cold storage and sell them when prices rise, while Shyamal is forced to sell his crops immediately at a low price to the trader.

5. Can everyone in Sonpur get credit at a cheap rate? Who are the people who can?

• No, not everyone in Sonpur can get credit at a cheap rate.
• Only medium and large farmers like Arun, who can provide collateral, are eligible for bank loans at low interest rates.
• Small farmers and landless workers rely on informal sources like traders and employers, which charge high-interest rates.

6. Tick the correct answer.

(i) Over the years, Rama’s debt:

• Will rise.
  Reason: She frequently takes fresh loans before repaying the old ones, leading to a persistent debt cycle.

(ii) Arun is one of the few people in Sonpur to take a bank loan because:

• Banks demand collateral which everyone cannot provide.

Let’s Work These Out: (Page 50)

1. How do SHGs help the poor?
   • SHGs help the poor by providing affordable and timely credit without requiring collateral. They also enable self-employment opportunities, help in releasing mortgaged assets, and encourage financial discipline.
2. Why are banks more willing to lend to SHGs than individuals?
   • Banks prefer lending to SHGs because:
     • SHGs ensure collective responsibility for repayment.
     • Members monitor each other, reducing the risk of default.
     • Group-based lending eliminates the need for collateral.
3. List some activities for which SHG loans are used.
   • Working capital needs (e.g., seeds, fertilizers, raw materials).
   • Acquiring assets (e.g., sewing machines, handlooms, cattle).
   • Releasing mortgaged land.
   • Housing and other small business-related investments.
4. What social benefits do SHGs provide apart from financial support?
   • SHGs empower women by making them financially independent.
   • They create awareness and foster collective action on social issues like health, nutrition, and domestic violence.

Answers to Textbook Exercises:

1. In situations with high risks, credit might create further problems for the borrower. Explain.

Ans: When a borrower takes credit during high-risk situations (e.g., crop failure, economic downturn), they may be unable to repay the loan. This could lead to:

• Debt traps, where the borrower must take another loan to repay the previous one.
• Asset loss if collateral is seized by the lender.
• Increased financial and mental stress on the borrower and their family.

2. How does money solve the problem of double coincidence of wants? Explain with an example of your own.

Ans: Money acts as a medium of exchange, eliminating the need for both parties to want exactly what the other offers (double coincidence of wants).
Example:
If a farmer grows wheat but wants rice, they don’t need to find someone who wants wheat and has rice. The farmer can sell the wheat for money and use the money to buy rice.

3. How do banks mediate between those who have surplus money and those who need money?

Ans: Banks mediation function is explained below:

• Banks accept deposits from people with surplus money and pay them interest.
• They lend this money to people who need it for purposes like business, education, or agriculture and charge a higher interest rate.
• This process benefits both depositors (who earn interest) and borrowers (who get access to credit).

4. Look at a 10 rupee note. What is written on top? Can you explain this statement?

Ans: On a 10 rupee note, it says, “Reserve Bank of India – Guaranteed by the Central Government.”
This means:

• The Reserve Bank of India (RBI) issues the currency on behalf of the central government.
• The government guarantees the value of the note, ensuring it is valid for all transactions within the country.

5. Why do we need to expand formal sources of credit in India?

Ans: We need to expand formal sources of credit in India:

• To reduce dependence on informal lenders who charge high-interest rates.
• To ensure affordable credit for the poor and marginalized sections of society.
• To promote economic activities like farming, small businesses, and self-employment.
• To prevent debt traps and improve the financial inclusion of rural and poor communities.

6. What is the basic idea behind the SHGs for the poor? Explain in your own words.

Ans: The basic idea behind the SHGs for the poor is explained below:

• The idea is to organize poor individuals, especially women, into small groups that pool savings.
• SHGs provide affordable loans to their members and empower them to become financially independent.
• They also create opportunities for self-employment and act as a platform to address social issues.

7. What are the reasons why the banks might not be willing to lend to certain borrowers?

Ans: In the following situations banks might not be willing to lend to the certain borrowers.

• Lack of collateral to secure the loan.
• Poor credit history or inability to repay.
• High risk involved in certain sectors like agriculture.
• Lack of proper documentation, such as ID proof or income statements.

8. In what ways does the Reserve Bank of India supervise the functioning of banks? Why is this necessary?

Ans: The RBI of India supervises the functioning of of banks to ensure that:

• Banks maintain a minimum cash reserve.
• Loans are distributed fairly to various sectors, including small-scale industries and agriculture.
• Banks report their lending activities, interest rates, and overall performance regularly.

It (supervision) is necessary because Supervision prevents fraud, ensures financial stability, and protects depositors’ money.

9. Analyse the role of credit for development.

Ans: Role of credit in development is explained below:

• Credit enables investment in businesses, farming, and education, leading to increased productivity and income.
• It helps people meet emergencies and improve their living standards.
• Affordable credit reduces dependence on informal sources, preventing exploitation.
• Properly utilized credit boosts economic growth and creates employment opportunities.

10. Manav needs a loan to set up a small business. On what basis will Manav decide whether to borrow from the bank or the moneylender? Discuss.

Ans: Manav will consider factors like:

• Interest rate: Banks offer lower rates than moneylenders.
• Collateral: Moneylenders might not ask for collateral, unlike banks.
• Loan terms: Banks have stricter repayment schedules, while moneylenders may offer flexibility.
• Trust and accessibility: Moneylenders may be more accessible but less trustworthy.

11. In India, about 80% of farmers are small farmers, who need credit for cultivation.

(a) Why might banks be unwilling to lend to small farmers?
(b) What are the other sources from which the small farmers can borrow?
(c) Explain with an example how the terms of credit can be unfavourable for the small farmer.
(d) Suggest some ways by which small farmers can get cheap credit.

Answer:

(a) Banks might hesitate because:

• Small farmers lack collateral or credit history.
• Farming is a high-risk activity (e.g., dependency on weather).

(b) Other sources include:

• Moneylenders, traders, relatives, and cooperatives.

(c) Unfavourable terms of credit example:

• A farmer borrows Rs 10,000 from a moneylender at a high interest rate (e.g., 36% annually). After a bad harvest, the farmer cannot repay and ends up mortgaging their land.

(d) Ways to provide cheap credit:

• Expanding formal credit through banks and cooperatives.
• Promoting SHGs to provide affordable loans.
• Offering government-subsidized loans for small farmers.

12. Fill in the blanks:

(i) Majority of the credit needs of the _______households are met from informal sources. (ii) ___________________costs of borrowing increase the debt-burden. (iii) ______ issues currency notes on behalf of the Central Government.
(iv) Banks charge a higher interest rate on loans than what they offer on ______ .
(v) ______ is an asset that the borrower owns and uses as a guarantee until the loan is repaid to the lender.

Answer:

(i) Majority of the credit needs of the poor households are met from informal sources.
(ii) High costs of borrowing increase the debt burden.
(iii) Reserve Bank of India issues currency notes on behalf of the Central Government.
(iv) Banks charge a higher interest rate on loans than what they offer on deposits.
(v) Collateral is an asset that the borrower owns and uses as a guarantee until the loan is repaid to the lender.

13. Choose the most appropriate answer:

(i) In a SHG most of the decisions regarding savings and loan activities are taken by
(a) Bank.
(b) Members.
(c) Non-government organisation.

(ii) Formal sources of credit does not include
(a) Banks.
(b) Cooperatives.
(c) Employers.

Answer:

(i) In a SHG, most of the decisions regarding savings and loan activities are taken by:
(b) Members.

(ii) Formal sources of credit do not include:
(c) Employers.