NCERT Solutions for Money and Credit Class 10 Notes Economics Chapter 3

Author at PW

February 08, 2025

Money and Credit Class 10:- The chapter "Money and Credit" in Class 10 Economics introduces students to the importance of money in our daily lives and how the credit system works. It explains how money makes buying and selling goods easier by acting as a medium of exchange. The chapter also covers different sources of credit, both formal like banks and informal like moneylenders, and discusses how credit can impact people's lives and the economy. Check out the Money and Credit Class 10 Notes from the below article.

Check out: CBSE Class 10th Books

Money and Credit Class 10 Notes

Check out the class 10 economics chapter 3 notes below:-

Q1. In situations with high risks, credit might create further problems for the borrower. Explain.
Answer: When borrowers take credit in high-risk situations, they are often subjected to high interest rates, which can become problematic if they face financial losses. If they are unable to repay the loan, they may find themselves in a debt trap, where the accumulated interest exacerbates their financial burden. This situation can force borrowers to sell assets, such as land, to repay the loan, thus worsening their financial position and creating further difficulties.

Q2. How does money solve the problem of double coincidence of wants? Explain with an example of your own.
Answer: The problem of double coincidence of wants arises in a barter system where each party must have what the other desires. Money solves this issue by acting as a medium of exchange, allowing individuals to trade goods and services indirectly. For instance, if a farmer wants to sell rice but doesn't need what the buyer offers in return, money enables the farmer to sell rice for money and then use that money to purchase other needed goods or services.

Q3. How do banks mediate between those who have surplus money and those who need money?
Answer: Banks act as intermediaries by collecting deposits from those with surplus funds and lending these funds to those in need of credit. Depositors earn interest on their savings, while borrowers pay interest on the loans they receive. Banks, therefore, facilitate the flow of money in the economy, ensuring that funds are available for productive uses.

Q4. Look at a 10 rupee note. What is written on top? Can you explain this statement?
Answer: The top of a 10 rupee note reads “Reserve Bank of India” and “Guaranteed by the Central Government.” This indicates that the currency is issued by India's central bank, the Reserve Bank of India (RBI), under the authority of the Central Government. The guarantee ensures that the currency is legally recognized and backed by the government, making it a valid medium of exchange.

Q5. Why do we need to expand formal sources of credit in India?
Answer: Expanding formal sources of credit is essential to provide more equitable access to financial resources. Unlike informal sources, which often charge exorbitant interest rates, formal sources like banks offer regulated and fair credit terms. Expanding these sources helps reduce the exploitation of borrowers, promotes economic stability, and supports broader development goals by ensuring that more people can access affordable credit.

Q6. What is the basic idea behind the SHGs for the poor? Explain in your own words.
Answer: Self Help Groups (SHGs) are small, community-based groups that pool savings from their members to create a fund. Members can borrow from this fund at low-interest rates, helping them meet financial needs without relying on expensive informal credit. SHGs also enable members to qualify for bank loans, fostering financial inclusion and empowering rural populations, particularly women, by promoting self-reliance and entrepreneurship.

Check out: CBSE Class 10th Sample Papers

Q7. What are the reasons why banks might not be willing to lend to certain borrowers?
Answer: Banks may hesitate to lend to certain borrowers due to the following reasons:

Lack of adequate documentation or collateral.
Irregular income or unstable employment, which increases the risk of non-repayment.
Previous credit defaults or inclusion in the list of Non-Performing Assets (NPAs).
High-risk ventures, especially in cases involving start-up entrepreneurs.

Q8. In what ways does the Reserve Bank of India supervise the functioning of banks? Why is this necessary?
Answer: The Reserve Bank of India supervises banks by ensuring they maintain adequate cash reserves, regulate interest rates, and extend loans to various sectors, including small farmers and businesses. This supervision ensures financial stability, prevents bank failures, and protects depositors' interests, thereby maintaining confidence in the banking system.

Q9. Analyse the role of credit for development.
Answer: Credit plays a vital role in development by providing the necessary funds for investment in various sectors, including agriculture, small businesses, and industry. Affordable credit enables individuals and enterprises to invest in technology, expand operations, and increase productivity, ultimately contributing to economic growth and development. In agriculture, for example, credit allows farmers to purchase modern equipment, leading to improved yields and food security.

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? Discuss.
Answer: Manav should consider several factors before deciding where to borrow from:

Compare the interest rates offered by the bank and the moneylender, opting for the lower rate.
Assess whether he meets the bank's eligibility criteria and can provide the necessary documentation.
Consider the repayment terms and conditions, ensuring they are manageable and do not lead to financial strain.

Q11. In India, about 80 per cent of farmers are small farmers who need credit for cultivation.
a. Why might banks be unwilling to lend to small farmers?
Answer: Banks may be reluctant to lend to small farmers due to the high risk of crop failure, which could hinder their ability to repay loans. Additionally, small farmers may lack the necessary documentation or collateral required by banks to secure a loan.
b. What are the other sources from which the small farmers can borrow?
Answer: Small farmers often turn to informal sources of credit such as moneylenders, traders, and relatives when they are unable to secure loans from banks.
c. Explain with an example of how the terms of credit can be unfavourable for the small farmer.
Answer: For example, if a small farmer takes a loan from a moneylender with a high-interest rate and experiences a poor harvest, they may struggle to repay the loan. This could lead to further borrowing or asset liquidation, trapping the farmer in a cycle of debt.
d. Suggest some ways by which small farmers can get cheap credit.
Answer: Small farmers can access cheaper credit by approaching formal sources like cooperative banks, credit unions, or government schemes designed to provide low-interest loans to the agricultural sector.

Q12. Fill in the blanks:
Answer: a. Poor b. High c. Reserve Bank of India d. Deposits e. Collateral

Choose the most appropriate answer.
Answer: a. Members b. Employers

Check out: CBSE Class 10th Question Banks

Money and Credit Class 10 Summary

The "Money and Credit" chapter in Class 10 Economics focuses on the role of money as a medium of exchange and the functioning of the credit system. The chapter begins by explaining how money evolved to simplify trade by replacing the barter system, where goods were directly exchanged. It then explores the different forms of money, including currency and deposits in banks.

The chapter also discusses the concept of credit, highlighting its benefits and risks. Credit allows individuals and businesses to borrow money for various purposes, but it can also lead to debt traps if not managed carefully. The distinction between formal sources of credit, such as banks, and informal sources, like moneylenders, is emphasized, with a focus on the advantages of formal credit.

Additionally, the chapter examines the role of the Reserve Bank of India (RBI) in regulating the banking system and ensuring that loans are available not only to profit-making organizations but also to small farmers and businesses. Finally, the chapter underscores the need to expand formal sources of credit in India to reduce reliance on high-interest informal loans, thereby promoting economic stability and development.

Check Out: CBSE Class 10th Revision Books

Money and Credit Class 10 FAQs

Q1. How did money evolve from the barter system?

Ans. Money evolved as a solution to the limitations of the barter system, where direct exchange of goods required both parties to want what the other had. Money provides a universally accepted medium for transactions.

Q2. What are the different forms of money?

Ans. The primary forms of money include currency (coins and paper notes) and bank deposits, which can be accessed through cheques or digital transactions.

Q3. What is credit, and how does it work?

Ans. Credit is an agreement in which a borrower receives money or goods now and agrees to repay the lender in the future, usually with interest. It facilitates various economic activities by providing immediate resources.

Q4. What is the difference between formal and informal sources of credit?

Ans. Formal sources of credit include banks and cooperatives, which are regulated by government authorities. Informal sources include moneylenders and traders, which often operate without regulation and may charge higher interest rates.

Q5. What are the benefits and risks associated with credit?

Ans. Credit can help individuals and businesses by providing necessary funds, but it also carries the risk of debt traps if the borrower is unable to repay, leading to further financial difficulties.

Recommended for you