Extra 30 short-answer questions and answers (2-3 marks each) from Chapter: Money and Credit of Class 10 CBSE Economics:
1-10: Money and Its Functions
What is money? Why is it used in modern transactions?
Ans:
Money is anything that is widely accepted as a medium of exchange. It is used in modern transactions because:
It eliminates the problem of double coincidence of wants.
It acts as a store of value and measure of wealth.
What are the functions of money?
Ans:
Medium of Exchange
– Used to buy and sell goods and services.
Store of Value
– Can be saved for future use.
Measure of Value
– Helps in determining prices of goods.
Standard of Deferred Payment
– Used for future payments like loans.
Why is money called a medium of exchange?
Ans:
Money acts as a medium of exchange because:
It allows buyers and sellers to trade goods and services easily.
It removes the need for the barter system, which required a double coincidence of wants.
What are the limitations of the barter system?
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Double Coincidence of Wants
– Both parties must want each other’s goods.
Lack of Standard Value
– No common measure for pricing goods.
Difficult to Store Wealth
– Goods can perish or lose value.
What are the different forms of modern money?
Ans:
Coins and Paper Currency
– Issued by the government and widely accepted.
Bank Deposits
– Money deposited in banks, which can be withdrawn as cash or through digital transactions.
What is the role of the Reserve Bank of India (RBI) in issuing currency?
Ans:
The RBI has the sole authority to issue currency notes in India.
It ensures that the money supply remains stable to control inflation and economic growth.
What is the significance of demand deposits?
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Money can be withdrawn anytime without prior notice.
It provides a convenient way of making payments through cheques and digital transactions.
What is a cheque, and how does it work?
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A cheque is a written instruction to a bank to transfer money from one account to another.
It is a secure method of payment without the need for cash.
Why is paper money preferred over commodity money?
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Paper money is lightweight and easy to carry.
It is more durable and does not perish like commodity money (e.g., grains, cattle).
Why does modern currency have no intrinsic value?
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It is made of paper or cheap metal, but is accepted by law as legal tender.
Its value is based on government backing and public trust.
11-20: Credit and Its Types
What is credit?
Ans:
Credit refers to an agreement where a lender provides money, goods, or services to a borrower in exchange for repayment in the future, usually with interest.
What is the difference between formal and informal sources of credit?
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Formal Credit:
Provided by banks and cooperatives, regulated by the RBI.
Informal Credit:
Provided by moneylenders, traders, and relatives, not regulated by any authority.
Why do banks demand collateral while giving loans?
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Collateral acts as a security against loan default.
It ensures that the borrower repays the loan on time.
What is collateral? Give an example.
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Collateral is an asset pledged by the borrower to get a loan.
Example:
A house or land can be used as collateral for a home loan.
Why are informal sources of credit harmful to borrowers?
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They charge very high-interest rates.
They can exploit borrowers by imposing unfair terms.
What are the advantages of formal sources of credit?
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Lower interest rates compared to informal sources.
Regulated by the RBI, ensuring fair practices.
Provides loans for productive purposes like business and farming.
What is the role of cooperatives in providing credit?
Ans:
Cooperatives pool resources from members to provide low-interest loans.
They help farmers, small businesses, and rural workers access credit.
Why do poor people depend on informal sources of credit?
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Banks require documentation and collateral, which poor people lack.
Informal lenders provide quick and easy credit without paperwork.
What is the role of microfinance institutions in rural areas?
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Provide small loans to poor individuals, especially women.
Help in self-employment and poverty reduction.
What are Self-Help Groups (SHGs)? How do they help borrowers?
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SHGs are small groups of people who pool their savings and lend to each other.
They help in accessing bank loans without collateral.
21-30: Banking, Loan System, and Impact of Credit
What is the main source of income for banks?
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Banks earn money by charging interest on loans given to individuals and businesses.
Why do banks keep only a fraction of deposits as cash?
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Banks need to maintain liquidity for customer withdrawals.
The rest is used to provide loans and earn interest.
How does credit play a positive role in the economy?
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Helps businesses expand and generate employment.
Allows people to buy homes, vehicles, and start businesses.
How can credit have a negative impact on borrowers?
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High-interest loans can lead to debt traps.
If investments fail, borrowers may lose their collateral (e.g., land or house).
What happens when a borrower fails to repay a loan?
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The lender may seize the collateral to recover the loan.
It can lead to financial distress for the borrower.
Why do moneylenders charge high-interest rates?
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They operate without regulation.
They take advantage of borrowers who lack access to formal credit.
How do banks help in the development of a country?
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Provide capital for businesses and industries.
Support agriculture and rural development.
Encourage savings and financial stability.
What is financial inclusion? Why is it important?
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Financial inclusion means ensuring access to financial services for all.
Importance:
Helps in reducing poverty.
Provides credit for small businesses and farmers.
Why is the Reserve Bank of India (RBI) important for the economy?
Ans:
It controls the money supply and inflation.
Regulates banks to ensure the stability of the financial system.
What steps has the government taken to improve rural banking?
Ans:
Expansion of cooperative and regional rural banks.
Promotion of Self-Help Groups (SHGs) for easy credit access.
Implementation of financial literacy programs.
