NCERT Class 10 Economics – Chapter 3: Money and Credit
Exercise Questions with Answers and Explanations
Q1. In situations with high risks, credit might create further problems for the borrower. Explain.
Answer: If the borrower cannot repay the loan, the debt increases and makes the situation worse.
Explanation: When income is uncertain—like in farming—credit becomes risky. If crops fail, the borrower has no money to repay, leading to more loans and a debt trap.
Q2. How does money solve the problem of double coincidence of wants? Explain with an example of your own.
Answer: Money allows people to buy and sell goods without needing to exchange goods directly.
Explanation: In barter, both people must want what the other offers. With money, you can sell your item to anyone and use the money to buy what you need. It makes trade much easier.
Q3. How do banks mediate between those who have surplus money and those who need money?
Answer: Banks collect money from savers and give loans to those who need it.
Explanation: Banks act as a link. They take deposits from people who have extra money and provide that money as loans to people who want to invest, grow a business, or meet expenses.
Q4. Look at a ₹10 note. What is written on top? Can you explain this statement?
Answer: It says “I promise to pay the bearer the sum of ten rupees,” signed by the RBI Governor.
Explanation: This means the value of the note is guaranteed by the Reserve Bank of India. It is legal money that everyone must accept in exchange for goods or services.
Q5. Why do we need to expand formal sources of credit in India?
Answer: So that poor people can get cheap loans and avoid high‑interest moneylenders.
Explanation: Informal lenders charge very high interest, which pushes poor people into debt. Formal sources like banks offer fair and safer loans. Expanding them will support equality and growth.
Q6. What is the basic idea behind the SHGs for the poor? Explain in your own words.
Answer: SHGs are small groups that help poor people save and borrow small amounts of money.
Explanation: Self Help Groups allow members to support each other. They offer loans at low interest and often get loans from banks without needing collateral. This builds confidence and self‑reliance.
Q7. What are the reasons why the banks might not be willing to lend to certain borrowers?
Answer: Because some people have no job, no regular income, or no collateral.
Explanation: Banks need to be sure the loan will be repaid. If someone has no job or asset to offer as security, banks think it's too risky to lend.
Q8. In what ways does the Reserve Bank of India supervise the functioning of banks? Why is this necessary?
Answer: RBI checks if banks follow rules, keep enough cash, and lend fairly.
Explanation: RBI supervision ensures that banks work properly, do not cheat customers, and support national goals. It helps keep the banking system safe and trustworthy.
Q9. Analyse the role of credit for development.
Answer: Credit helps people earn more by starting farms, businesses, or services.
Explanation: If used well, credit improves income and employment. But if credit is taken under bad terms or during risky times, it can lead to debt. So, fair and safe credit is key for development.
Q10. 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?
Answer: Manav will check interest rate, repayment time, and if documents or security are needed.
Explanation: If the bank gives cheaper and safer credit, he should choose it. But if he lacks documents or collateral, he may go to a moneylender, who usually charges much higher interest.
Q11. 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?
Answer: Banks might not lend because they don’t have land or security.
(b)What are te other sources from which the small farmers can borrow?
Answer: From moneylenders, traders, relatives, or Self Help Groups.
(c) Explain with an example how the terms of credit can be unfavouravle for the small farmer
Answer: A trader may give loan and force the farmer to sell crops at a low price.
(d) Suggest some ways by which small farmers can get cheap credit.
Answer: Increase loans from banks, cooperatives, and SHGs.
Explanation: Small farmers are often excluded from bank loans due to lack of documents or assets. They rely on informal loans, which can be unfair. Giving them easier access to formal credit can improve their lives.
Q12. Fill in the blanks:
(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.
Q13. Choose the most appropriate answer:
(i) In a SHG most of the decisions regarding savings and loan activities are taken by Members.
(ii) Formal sources of credit do not include Employers.
Explanation: SHGs are self‑managed groups where members decide how to use savings and loans. Formal credit includes banks and cooperatives, but not private individuals like employers.
Key Takeaways
- Credit is a critical tool for growth but must be fair and well-managed.
- Formal credit sources reduce the burden caused by informal high‑interest loans.
- SHGs empower poor households through collective savings and low‑interest lending.
- RBI’s oversight maintains the stability and trustworthiness of the banking system.
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