Long Answer – Class 10 – Social Science -Economics-Chapter : 3 :Money and Credit

Long Answer – Class 10 – Social Science -Economics-Chapter : 3 :Money and Credit

Q1. What is money? Why is modern money currency accepted as a medium of exchange?

 Ans : Money is a medium of exchange used in settling the transactions.

a. Money acts as an intermediate in the exchange process and eliminates the need for double coincidence of wants. As money acts as intermediate, it is also called medium of exchange.

b. People have exchanged their goods and services since from the beginning. The medium of exchange kept on changing in different phases.

c. In the modem phase currency notes- paper notes and coins are used as a medium of exchange.

d. These are not made of any precious metals even though used as a medium of exchange because the government of the country authorizes the currency.

e. As the law legalizes the use of rupee, so no individual can refuse a payment made in rupees. Therefore, rupee is widely accepted as a medium of exchange.

Q2. Whether credit will be useful or not, depends upon the situation.” Give two different examples in support of this statement.

 Ans : It is true to say that the usefulness of credit depends on the situations. Positive role of credit:

credit plays a positive role when the borrower is able to return the loan amount on time and also made some profit with the use of that money.

For example: Salim, a shoe manufacturer took a loan from different sources to complete the order of 3000 pair of shoes, in the end he delivered the order, made profit and repaid the loan.

Negative role of credit: sometimes credit is very painful as it pushes the borrower into such a situation from where recovery is very difficult.

In this situation the borrower is not able to repay the loan and many a times caught into the situation of debt-trap.

For example:-a small farmer Swapna took loan for crop cultivation but due to some reason she faced the situation of crop failure.

So she took another loan for spraying pesticides but the production was not enough to repay the loan. So she was caught in debt-trap.

Q3. Review any three merits and any two demerits of ‘formal sector of credit’ in India.

 Ans : Merits of formal sector credit in India:

a. It provides cheap and affordable credit.

b. Due to low cost of borrowing, the borrowers have to repay less and they will have more saving.

c. The loan activities of the formal sector is supervised by the RBI. Demerits of formal sector credit in India:

a. Mostly people in the urban areas and the well-off households use it.

b. Formal sector credit need proper documents and collateral before lending.

Q4. How can the formal sector loans be made beneficial for the poor farmers and workers? Suggest any five measures.

Ans : The formal sector loans can be made beneficial for the poor farmers and the workers by taking the following measures:

a. There should be availability of more and more banks in the rural areas.

b. Providing the loan to the poor at much cheaper rates.

c. There should be easy access to loan.

d. Depending on situation, farmers should be given credit without collateral.

e. There should be provision of instant loan to the farmers and the poor.

Q5. How are deposits with banks beneficial for the individual as well as for the nation? Explain with examples.

Ans :  Those having extra cash open a bank account in their name and deposit the surplus money there.

Their money is safe with the banks and they get some interest rate on the amount they have deposited.

Out of the total money deposited with the banks 15% of it is kept as minimum cash balance to pay to the depositors who might come to withdraw money from the bank on any given day.

Rest of the amount is used to extend loan to the borrowers. This helps people to run and expand their business which will increase the individual income and finally the country’s income.