JAC Class 10 Social Science Important Questions Economics Chapter 3 Money and Credit

JAC Board Class 10th Social Science Important Questions Economics Chapter 3 Money and Credit

Multiple Choice Questions

Question 1.
“Money is what money does” who said?
(a) Crowther
(b) Robertson
(c) Walker
(d) Marshall
Answer:
(c) Walker

Question 2.
Direct exchange of goods against goods is called
(a) Charter
(b) Money
(c) Walker
(d) None of these
Answer:
(c) Walker

Question 3.
What possess general acceptability?
(a) Bank draft
(b) Money
(c) Bill of exchange
(d) None of these
Answer:
(b) Money

Question 4.
Which type of deposits gives highest rate of interest?
(a) Current deposit
(b) Fixed deposit
(c) Recurring deposit
(d) None of these
Answer:
(b) Fixed deposit

Question 5.
Which bank deals with short-term credit?
(a) Agricultural bank
(b) Commercial bank
(c) Industrial bank
(d) None of these
Answer:
(b) Commercial bank

Question 6.
Which of the following is not the function of the commercial bank?
(a) Issue of paper notes
(b) Acceptance of deposits
(c) Advancing loans
(d) Credit control
Answer:
(a) Issue of paper notes

Question 7.
Which of the following is not near money?
(a) Paper notes
(b) Treasury bill
(c) Bond
(d) Bill of exchange
Answer:
(a) Paper notes

Question 8.
Which bank is called lender of last resort?
(a) Commercial bank
(b) Agricultural bank
(c) Industrial bank
(d) Central bank
Answer:
(d) Central bank

Question 9.
In which year the Reserve Bank of India was established?
(a) 1945
(b) 1947
(c) 1935
(d) 1953
Answer:
(c) 1935

Question 10.
Which bank enjoys monopoly power of Note issue?
(a) NABARD
(b) Commercial Bank
(c) Central Bank
(d) Nope of these
Answer:
(c) Central Bank

Very Short Answer Type Questions

Question 1.
Why are transactions made in money?
Answer:
A person holding money can easily exchange it for any commodity or service that he or she might want.

Question 2.
Define Double Coincidence of Wants.
Answer:
In the barter system, when the demand of two persons for each other’s commodity is raised at the same time, it is called Double Coincidence of Wants.

Question 3.
Mention the modern form of money.
Answer:
Modern forms of money include currency – paper notes and coins.

Question 4.
What is the main function of the Reserve Bank of India?
Answer:
The Reserve Bank of India issues currency notes on behalf of the central government and supervises the functioning of formal sources of loans.

Question 5.
What does loan agreement specify?
Answer:
Loan agreement specifies an interest rate, mode of repayment, collateral and necessary documentation.

Question 6.
Why do farmers require credit?
Answer:
Farmers require credit to purchase seeds, fertilizers, pesticides and for irrigation purposes.

Question 7.
What is ‘credit’?
Answer:
Credit (loan) refers to an agreement in which the lender supplies the borrowers with money, goods or services in return for the promise of future payment.

Question 8.
What are informal sectors of loan?
Answer:
Informal sectors of loan include money-lenders, traders, employers, relatives and friends, etc.

Question 9.
What are the formal sectors of loan?
Answer:
Formal sectors of loan include all the banks and cooperatives.

Question 10.
Which is the newer way of providing loans to the rural poor, particularly women?
Answer:
Self Help Groups.

Short Answer Type Questions

Question 1.
Define money.
Answer:

1. Money refers to a medium of exchange used in economic transactions or in exchange of goods and services.
2. Transactions are made in money because it eliminates the inconvenience of barter system of exchange. In an economy, where money is in use, it eliminates the need for double coincidence of wants by providing the crucial intermediate step.
3. The use of money spans a very large part of our everyday life. There are several transactions involving money in any single day.

Question 2.
What is a demand deposit? List two advantages of demand deposits.
Answer:
A demand deposit is a deposit with the bank that people have the provision to withdraw the money as and when they require. Since the deposits in the bank accounts can be withdrawn on demand, these deposits are called demand deposits. Advantages of demand deposits:

1. Demand deposits earn an amount as interest.
2. They act as a medium of exchange like money. They constitute money in the modern economy. They are accepted widely as a means of payment by way of a cheque instead of cash.

Question 3.
What is a cheque? What is the advantage of using a cheque for payment?
Answer:
A cheque is a paper instructing the bank to pay a specific amount from the person’s account to the person in whose name the cheque has been issued. For payment through a cheque, the payer who has an account with the bank prepares a cheque for a specific amount. Advantages of using a cheque for payment:

1. We issue cheques against demand deposits, which make it possible to directly settle payments without the use of cash.
2. Since demand deposits are accepted widely as a means of payment along with currency, they constitute money in the modem economy.

Question 4.
Differentiate between the terms of credit offered in formal and informal sectors of credit.
Answer:

Formal Sector	Informal Sector
(i) RBI supervises their function of giving loans.	(i) No organization is there to supervise its lending activities.
(ii) Collateral is required to obtain credit.	(ii) This sector gives loans without collateral.
(iii) The rate of interest is comparatively low than that of the informal sector , loans.	(iii) Higher interest rates on loan are charged.

Question 5.
What are the various purposes for which the rural people require credit?
Answer:
The various purposes for which the rural people require credit are:

1. People in rural areas generally require credit to meet the expert civilities.
2. In the case of crop failure, they take fresh loans for cultivation and to repay previous debt. In this situation, the credit pushes the person into a debt trap.
3. Also, they require a loan to meet the daily expenses such as expenses for sudden illness or functions in the family.

Question 6.
Explain any three terms of credit.
Answer:
Three terms of credit are as follows:

1. Interest rate which the borrower must pay to the lender along with repayment of the principle.
2. Collaterals such as land titles, deposits with banks, livestock, etc., and documentation required.
3. Mode of repayment: This means how the borrower would repay the lender his/ her loan amount. For example, on the monthly, quarterly, half – yearly or yearly basis. They may vary depending on the nature of the lender and the borrower. The terms of credit vary substantially from one credit arrangement to another.

Question 7.
Why do poor farmers get into debt trap of informal sector?
Answer:
There are several reasons behind it. These are:

1. There is no organisation which supervises the credit activities of lenders in the informal sector.
2. They can lend at whatever interest rate they choose.
3. There is no one to stop them from using unfair means to get their money back.
4. Compared to the formal lenders, most of the informal lenders charge a much higher interest rate on loans. So, the cost to the borrowers of informal loans is much higher.
5. Higher cost of borrowing meanS a larger part of the earnings of the borrower is used to repay the loan.
6. The higher interest rate of borrowing can mean that the amount to be repaid is greater than the income of the borrower. This could lead to increasing debt and debt trap.

Question 8.
Explain with an example, how credit plays a vital and positive role for development.
Answer:
Cheap and affordable credit plays a vital and positive role for the country’s development.

1. Credit helps in increasing the economic activities of the borrowers.
2. A large number of transactions in our day- to-day activities involve credit in some form or the other.
3. It may be helpful in growing crops, doing business, setting up small-scale industries, trade in goods, etc.
4. If credit is available to the poor people on reasonable terms and conditions, they can improve their economic condition which in turn, will help them to have a better standard of living.

Question 9.
State any three advantages of an ATM.
Answer:
The three advantages of an ATM are as follows:

1. The full form ATM is Automated Teller Machine.
2. In case of an ATM, direct interaction with the bank is not required.
3. Money can be withdrawn from the ATM any time twenty-four hours in a day, whereas banks close their public dealings at a particular time, binding the depositor to come within that stipulated period.

Long Answer Type Questions

Question 1.
What is the role of a bank in the economic development of a country? Explain.
Answer:
Banks play a major role in the economic development of a country. These are as follows:

1. Banks mediate between those who have surplus money and those who need money. They take deposits from those who have surplus money and use the major portion of the deposits to extend loans.
2. They account for 25% of rural credit in India. In this way, they help in increasing the economic activities of the borrowers.
3. In India, banks give loans not just to profit-making businesses and traders but also to small cultivators, small-scale industries, small borrowers, etc.
4. Cheap and affordable credit is crucial for the country’s development. It helps to grow crops, to meet working capital needs of production and in setting up new industries or trade in goods.
5. They help poor people to increase their standard of living. If credit is available to poor people at a low rate of interest and on reasonable terms and conditions, they can improve their economic conditions.

Question 2.
What are the commercial banks? Mention any four of their functions.
Answer:
A commercial bank or a bank is a profit-making institution that accepts the deposits, pays an amount as interest on the deposits and extends loans to the needy people. The following are the functions of a commercial bank:

1. Commercial banks accept the deposits from those who have surplus money.
2. They pay an amount as interest on the deposits.
3. Banks in India hold about 15% of their deposits as cash as a provision to pay the depositors who might come to withdraw money from the bank on any given day and use the major portion of the deposits to extend loans.
4. They mediate between those who have surplus funds and those who are in need of these funds. They charge a higher interest rate on loans than what they offer on deposits.
5. The difference between what is charged from the borrowers and what is paid to the depositors is their main source of income.

Question 3.
What are formal sources of credit? Why do we need to expand formal sources of credit in India?
Answer:
The formal source of credit includes a loan from banks and co-operatives. We need to expand formal sources of credit in India for the following reasons:

1. Formal sources of credit are less risky and they charge a low rate of interest.
2. The Reserve Bank of India supervises the functioning of formal sources of loans. It monitors the banks in actually maintaining a cash balance.
3. RBI ensures that loans are given not only to the profit-making businessmen and traders but also to small cultivators, small- scale industries, small borrowers, etc.
4. Compared to the formal lenders, most of the informal lenders charge higher interest rates. Thus, the cost to the borrower becomes much higher that leads to less income. Also, the borrowers may become victim to debt – trap. So, formal sector loans help reduce dependence on informal sources of credit.
5. Due to the high interest rates of the informal source of credit, people who might wish to start an enterprise by borrowing, may not do so because of the high cost of borrowing.
6. Cheap and affordable credit by the formal sector is crucial for the country’s development.

Question 4.
Explain the term ‘debt – trap’. Why is it more rampant in rural areas? Give two reasons.
Answer:
When the credit pushes the borrower into a situation from which the recovery is very painful, it is called debt – trap. For example, in the case of crop failure small or marginal farmers have to sell a portion of his/her land to repay the loan. The debt – trap is rampant in rural areas because of the following reasons:

1. Farmers take loans for crop production, equipment, fertilizers, etc. If crop failure happens due to any reason, they become unable to pay back the loan.
2. There is usually an absence of any kind of support to the fanners in case of crop failure. So, they are clearly much worse off than before.

Question 5.
What are the Self – Help Groups? How do they work? Explain.
OR
“Self – Help Groups play an important role in solving the problems of rural poor.” In this context explain the social and economic values attached to it.
Answer:
1. It promotes women empowerment. SHGs are the groups created by needy persons themselves, especially women to fulfil their credit and loan needs. A typical SHG has 15 – 20 members, who meet and save regularly. So, through SHGs, women become economically independent. They are engaged in economic activities. Their voices are heard in the family and society,

2. The SHG encourages teamwork because it is an organization of about 15-20 members who meet and save at a regular interval.

3. The Self-Help Group leads to self sufficiency to its members. Members can take small loans from the group itself to meet their needs. If the group is regular in savings, it can avail loans from the bank that is meant to create self-employment opportunities for the members.

4. They are helpful in the eradication of poverty. This is because, the SHG provides cheap loans to its members to start self – employment activities such as establishing business units, shops, small trading, etc. In this way, they increase their incomes which leads to the eradication of poverty.

5. The SHG is a source of inspiration to its members. Inspiration refers to an unconscious burst of creativity in an artistic endeavour. It is a directing agent for a man to seek some purpose in life. Also, it controls the obstacles.

Activity Based Questions

Question 1.
The following table shows people in a variety of occupations in urban areas. What are the purposes for which the following people might need loans? Fill in the column.

Occupations	Reason for need of a Loan
Construction worker
Graduate student who is computer literate
A person employed in government service
Migrant labourer in Delhi
Household maid
Small trader
Autorickshaw driver
A worker whose factory has closed down

Next, classify the people into two groups based on whom you think might get a bank loan
and those who might not. What is the criterion that you have used for classification?
Answer:

Occupations	Reason for need of a Loan
Construction worker	To meet a medical emergency in the family
Graduate student who is computer literate	To pay the fees for a higher degree
A person employed in government service	To purchase a flat
Migrant labourer in Delhi	For expenses related to his daughter’s wedding
Household maid	To meet the daily expenses
Small trader	To run his business efficiently
Autorickshaw driver	To replace his old auto rickshaw with a new one
A worker whose factory has closed down	To meet his expenses till he gets employed again

Question 2.
Classification Regarding Ability to get a Loan
Answer:
The criteria I have used for this classification are:
1. Does the borrower have the potential to repay the loan or not?
People with a secure job or a running business will get a loan because they have the capability to repay the instalments. Here the government servant and small trader will be successful, whereas the migrant labourer, household maid, construction worker and worker whose factory has closed down will not be successful.

2. Whether the borrower is able to pledge collateral on which to guarantee the loan taken.
Here the auto rickshaw driver can pledge his auto rickshaw to the bank and the graduate student can pledge any capital asset owned by him. These two are the basic prerequisites for getting a loan from a bank.

Question 3.
Read the statement given below and answer the questions that follow:
(a) Which are the two major sources of credit for rural households in India?
Answer:
Moneylenders and Cooperative Societies

(b) Which one of them is the most dominant source of credit for rural households?
Answer:
Moneylenders

(c) Which is the most dominant source of credit? Give two reasons.
Answer:

1. Moneylenders do not ask for collateral.
2. Complicated paper work or documentation is not involved.

JAC Class 10 Social Science Important Questions