These AP 10th Class Social Important Questions Economics 3rd Lesson Money and Credit will help students prepare well for the exams.
Money and Credit AP 10th Class Social Economics 3rd Lesson Important Questions
AP 10th Class Social Economics 3rd Lesson Important Questions: 8 Marks
Question 1.
Explain with an example, how credit plays a vital and positive role for development,
Answer:
- Credit plays a crucial role in a country’s development.
- By sanctioning loans to developing industries and trade, banks provide them with the necessary aid for improvement.
- This leads to increase in the production, profits and employment.
- However, Caution must be exercised in the case of loans from the informal sector which include high interest rates that may be more harmful than good.
- For this reason, it is important that the formal sector gives out more loans so that borrowers are not duped by moneylenders, and can ultimately contribute to national development.
Question 2.
A farmer has borrowed money from a money lender at a high rate of interest, as he could not pay the interest, he was forced to borrow from another landlord to settle the amount for the interest borrowed to the money lender. State the consequences he may face in this situation.
Answer:
- Money lenders tend to charge higher interest rates, than traditional financial institutions. This means that borrowers will end up paying more in the long run.
- Money lenders may also require borrowers to sign contracts with high fees and other costly terms. These fees and terms can add up over time, making it difficult for borrowers to keep up with their payments.
- Money lenders may also engage in predatory lending practises that are illegal or unethical
- Money lenders are not regulated by state or federal laws and can be more aggressive in collecting on delinquent loans.
- Missing payments or defaulting on the loan could harm one’s credit score and lead to legal action or wage garnishment.
Question 3.
How can the formal sector loans be made beneficial for poor farmers and workers? Suggest any five measures.
Answer:
The various sources of loans are:
i) Formal sector loan
ii) Informal sector loan
Formal sector loan : They are given by banks and cooperatives. The informal lenders
include money lenders, traders, employers, relatives, friends etc.
Informal Sector loans : poor people and workers get much of their loans from the informal sectors, which are exploitative and charges very high interest rate.
The measures to make formal sector loan beneficial for poor farmers and workers are as follows:
- The formal sector should ensure that every needy receivers loans.
- The formal sector like, banks and cooperatives should lend more to poor people and workers, particularly in rural areas.
- Providing Self Help Group (SHG) bank linkage.
- The formal sector should provide cheap and affordable credit.
- Increase the number of cooperatives and banks in rural areas.
Question 4.
How do banks play an important role in the economy of India? Explain.
Answer:
- i) Banks provides a safe foundation for individuals and businesses to invest or deposit their money, which allows the, bank to use the money in its possession for loans.
- The ability for the public to receive these loans enables them to make purchases, which drives the economy at higher level.
- The bank take the deposits, and turn them into assets. This is accomplished by . the banks investing the money that is deposited in a way that gains them higher returns that what is being paid to the depositor’s account when they receive interest.
- Banks mediate between people having surplus cash and those in need of it.
- They give interest to the depositors, and they’charge interest on those taking loans from the banks.
Question 5.
How does credit play a positive and a negative role? Explain with examples.
Answer:
Positive role:
- Credit helps people from all walks of life set up their businesses, increase their income, and support their families.
- Credit helps in constructing their houses and getting relief from monthly rent. Example: The credit helps Rohan, through which he is able to increase his earnings.
Negative role:
- Credit plays a negative role when it results in the formation of a circle or a trap known as a debt trap.
- A debt trap is a situation in which a person, after taking a loan, is not able to pay back the loan and takes a fresh one.
- Rural borrowers normally depend on informal sources of credit, which charge a high rate of interest.
- This repayment of larger amounts may sometimes be larger than their income.
Question 6.
“Cheap and affordable credit is crucial for the country’s development.” Justify the statement.
Answer:
- Increased lending would increase earnings and encourage more people to start small businesses, invest in agriculture, and operate small enterprises.
- Cheap credit indicates that the borrower will have more money available to invest rather than pay back as interest. The result is an increase in economic activity.
- Additionally, accessible credit would free up underprivileged groups from the exploitation of unregulated moneylenders and enable them to participate in the legal lending market. As a result, it might help the poor and landless with their economic situation.
- They will be shielded from debt traps by accessible financing, and they will be able to support national economic growth.
- As more people take advantage of the low-cost credit, they will invest more in small businesses, agriculture, and other industries, raising the GDP of the nation.
Question 7.
How are formal sources of credit different from informal sources? Explain with example.
Answer:
Formal Sources | Informal Sourees | |
Super | 1. Supervised by RBI(Reserve Bank of India) | 1. Unsupervised |
Prevalence | 2. Uniform regions | 2. Rural regions |
Rate of interest | 3. Low | 3. High |
Record keeping | 4. Required | 4. Not necessary |
Service conditions | 5. Good | 5. Bad: borrowers are often barassed |
Collateral | 6. Required | 6. Usually not required |
Examples | 7. Banks, cooperatives | 7. Moneylenders, relatives traders. |
Question 8.
“Self-help groups eliminates poverty and empowers women”. Substantiate with suitable answer.
Answer:
- Self-help groups (SHG) act as a bridge between women entrepreneurs who want to begin an enterprise but do not have the resources to fulfil their dream.
- Emerging as important microfinance systems, SHGs work as platforms that promote solidarity among women, bringing them together on issues of health, nutrition, gender parity, and gender justice.
- SHGS made a significant contribution to developing entrepreneurial aptitudes among rural women by enhancing their skills and giving them a chance to engage in various entrepreneurial activities.
- SHGS fodus on enhancing the functional capacity of the poor and marginalised in terms of employment and income generation.
They also resolve conflicts through collective leadership and mutual discussion. They provide collateral-free loans at market-driven rates decided by the group and serve as a collective guarantee system.
Question 9.
Justify the role of ‘Self Help Groups’ in the rural economy.
Answer:
Self-help groups are informal groups of people who come together to address their common problems, There role in rural economy are as follows:
- Self help groups are a crucial supplier of microfinance services to the under privileged.
- They serve as an intermediary for official banking services to the underprivileged, particularly in rural areas.
- Additionally, they urge the impoverished to develop saving habits.
- In the area of employment and income-generating activities, they work to increase the functional ability of the underprivileged and marginalised groups in society.
- They provide collateral-free loans to groups of people who typically struggle to obtain loans from banks.
- SHGs help people earn their livelihood by providing vocational training.
- They help the people by improving their existing source of livelihood by offering tools, etc.
- They also help ease the dependence on agriculture.
Question 10.
Explain the role of Self-Help Groups (SHGS) in the rural society.
Answer:
- The idea is to organize rural poor, in particular women, into small Self Help Groups (SHGs) and pool (collect) their savings.
- A typical SHG has 15-20 members; usually belonging to one neighbourhood, who meet and save regularly.
- Saving per member varies from Rs 25 to Rs 100 or more, depending on the ability of the people to save.
- Members can take small loans from the group itself to meet their needs.
- The group charges interest on these loans but this is still less than what the moneylender charges.
- After a year or two, if the group is regular in savings, it becomes eligible for availing loan from the bank.
- Loan is sanctioned in the name of the group and islneant to create self-employment opportunities for the members;
- Small loans are provided to the members for releasing mortgaged land, for meeting working capital needs
- Most of the important decisions regarding the savings and loan activities are taken by the group members.
- The group decides as regards the loans to be granted the purpose, amount, interest to be charged, repayment schedule etc. Also, it is the group which is responsible for the repayment of the loan.
- Any case of non-repayment of loan by any one member is followed up seriously by other members in the group.
Question 11.
Trace the evolution of money and discuss its impact on economic activities?
Answer:
- Limitations of barter system led to the need for money as a medium of exchange,
- Commodities like grains, cattle served as money in early societies.
- Introduction of metallic coins made transactions more efficient.
- Paper currency and banknotes backed by gold/silver emerged later.
- Fiat money with no intrinsic value is commonly used today
- Digitization of payments is leading to credit/debit cards, mobile wallets.
- Money enabled specialization, trade, calculation of values and prices.
- Facilitated emergence of complex economic transactions and activities.
Question 12.
Explain the functions of commercial banks in an economy with respect to money creation and credit provision?
Answer:
- Accept deposits from public and businesses to mobilize savings.
- Keep a fraction of deposits as cash reserves.
- Use major portion of deposits to extend loans to borrowers.
- Interest earned on loans exceeding interest paid to depositors is bank’s income.
- Create credit or bank money through system of fractional reserves.
- Credit creation expands money supply enabling economic growth.
- Provide payment services like cheques, debit cards, online transfers.
- Thus connect depositors and borrowers; channelize resources.
Question 13.
Discuss the role of the Reserve Bank of India with respect to regulating banking institutions and monetary policy.
Answer:
- Central bank and apex monetary authority in India.
- Issues currency, regulates and supervises commercial banks.
- Forfnulates and implements monetary policy aiming price stability
- Implements policies to maintain financial stability and liquidity.
- Lender of last resort for banks; overseas payments and settlements.
- Regulates interest rates, cash amfliquidity requirements in banking system.
- Directs credit allocation to different sectors through priority sector lending.
- Gives licenses to banks, regulates mergers and acquisitions.
Question 14.
Explain the difference between formal and informal sources of credit. Why is it important to expand formal credit in India?
Answer:
- Formal sector includes banks, cooperatives; regulated by RBI.
- Have wide outreach; cheaper loans using collateral.
- Informal sources like moneylenders, traders; unregulated.
- Charge higher interest; rely on personal knowledge and reputation.
- Wealthy households can access, formal cheap credit.
- Poor households depend more on expensive informal loans.
- Reduces income and perpetuates poverty and inequality.
- Need to expand formal credit via regional banks, microfinance, SHGs.
Question 15.
Discuss the role of microfinance and self – help groups in providing credit access to the poor and women in India?
Answer:
- Poor lack collateral and face high costs in obtaining bank loans.
- Microfinance provides small loans using group guarantee.
- SHGs organize women into savings and credit groups.
- Member savings act as collateral substitute to get bank loans.
- Peer pressure ensures timely repayments; reduce defaults.
- Low transaction costs due to proximity, doorstep services.
- Support women empowerment and entrepreneurship.
- Combined with training and counseling services.
Question 16.
Analyze the impact of demonetization on the availability of credit and economic activities in India?
Answer:
- Withdrawing legal tender status of high value currency notes.
- Reduced cash money supply to curb black money and fake currency.
- Temporarily slowed economic activities due to cash crunch.
- Farmers, small businesses with cash dependencies faced disruptions.
- Pyshed digital payments but exclusion issues for poorer sections.
- Credit squeeze due to dependence on cash deposits for lending.
- Policy improved formalization and digital payments over long term.
- But impact on informal, cash dependent sectors was severe.
Question 17.
What are the causes of agrarian distress and farmer suicides in India?
Answer:
- Small landholdings, high input costs, inadequate/volatile prices .
- Risks from monsoon, pests; crop failures and loan defaults.
- Lack of affordable formal credit forces dependence on informal lenders.
- High interest rates and debt traps due to crop failures.
- Absence of crop insurance adds to loss in bad years.
- Farmer suicides due to inability to repay debts.
- Need integrated policies – subsidized credit, crop insurance, MSP.
Question 18.
How does access to affordable credit impact poverty and inequality? Discuss.
Answer:
- Poor rely on informal lenders charging exorbitant interest rates.
- High debt servicing costs reducejncome available for necessities .
- Lack of access to affordable credit for entrepreneurship and investment.
- Perpetuates intergenerational cycles of poverty and deprivation.
- Credit from formal sources can build assets, increase incomes.
- Can finance education, health expenses and reduce vulnerability.
- Enables economic and social mobility; reduces inequality of opportunity.
Question 19.
What are the pros and cons of linking Aadhaar with bank accounts and credit applications in India? Discuss.
Answer:
Pros:
- Enables unique identification and reduces duplication.
- Authentication enables branchless banking, doorstep services.
- Reduces identity frauds in loan applications.
- Speeds up account openings bringing unbanked into formal system.
Cons:
- Privacy and data security concerns.
- Exclusion errors due to biometric or connectivity issues.
- Increased transaction costs for poor lacking Aadhaar.
- Centralized databases prone to leaks and cyber attacks.
- Need robust grievance redressal, data protection regulation.
Question 20.
How does access to credit impact women empowerment? Discuss with reference to seif – help groups.
Answer:
- Lack of income and assets limits women’s economic opportunities.
- High interest informal loans increase hardship, dependance.
- SHGs enable savings, better credit access at lower cost.
- Access to loans encourages entrepreneurship, asset building.
- Finance children’s education, health expenses during emergencies.
- Reduces vulnerability, builds financial resilience.
- Participation in group activities builds skills, social capital.
- Doqrstep credit saves time, encourages self-reliance.
Question 21.
What are some of the drivers of rising non – performing assets (NPAs) of public sectot banks in India?
Answer:
- Concentration of big loan defaults by large borrowers.
- Poor project appraisal and lax monitoring of large loans.
- Slow legal system delaying recovery or resolution.
- Lack of autonomy in loan decision making.
- Wilful defaulters not deterred in absence of decisive action.
- Economic downturns affecting business viability and defaults.
- Need reforms in governance and credit appraisal processes.
- Faster debt recovery mechanisms through dedicated tribunals.
- Credit rating system for better risk assessment.
(OR)
- Lax credit appraisal and monitoring of large corporate loans.
- Concentration of big defaults by. few large wilful defaulters.
- Economic downturns affecting business viability.
- slow legal system delaying loan recovery.
- Lack of accountability and poor project appraisal skills.
- Need reforms in governance structures, credit appraisal processes.
- Faster debt recovery through dedicated tribunals.
- Deterrent action against willful defaulters.
- Differentiate between willful and distressed defaulters.
Question 22.
How do currency crises and hyperinflation affect the credibility of a currency and its usage?
Answer:
- Rapid fall in currency value due to speculation or loss of confidence.
- Hyperinflation makes currency unstable, erodes purchasing power.
- People shift savings to stable foreign currency, assets like gold.
- Barter exchange, dollarization more common than local currency.
- Reduces credibility of currency for domestic transactions.
- Remittances, international trade affected due to volatility.
- Restoring stability requires fiscal reforms, austerity measures.
- Building foreign exchange reserves, tight monetary policy.
Question 23.
How does access to bank credit facilitate financial inclusion? Discuss steps taken in India for financial inclusion.
Answer:
- Promotes/savings and provides payment services.
- Enables investment, asset creation and insulates against shocks.
- Difficult for poor to provide collateral or comply with procedures.
- Steps taken – expanding regional rural banks, cooperatives.
- Licensing small finance banks, payment banks.
- Simplified KYC norms, microfinance, self help group lending.
- Leveraging technology mobile banking, Aadhaar enabled payments.
- Financial literacy programs to raise awareness,
Question 24.
What are the main factors that affect credit access for small and marginal farmers in India? Suggest policy measures to improve credit availability.
Answer:
- Lack of land records and collateral to offer banks.
- Small loan amounts make transactions costly for banks.
- Lack of adequate coverage of formal institutions in remote rural areas.
- Procedures and paperwork cumbersome for the uneducated poor.
- Crop failures and price volatility lead to defaults and over – indebtedness.
- Reliance on informal lenders charging exorbitant interest rates.
- Expand coverage of banks, cooperatives and microfinance institutions.
- Simplify procedures for small value loans.
- Promote joint liability lending through self help groups.
- Develop alternative credit evaluation mechanisms.
- Provide interest subvention, crop insurance.
Question 25.
Analyze the role of Reserve Bank of India in regulating banking institutions and discuss measures to improve banking penetration in India.
Answer:
- Central bank, formulates implenx§nts monetary policy.
- Issues currency, regulates commercial banks.
- Maintains financial stability, lender of last resort for banks.
- Interest rates, cash reserve, liquidity requirements.
- Priority sector lending targets.
- Licensing of new banks, approval for mergers.
- Inspection and audit to ensure governance.
- Expanding commercial bank branches in rural areas.
- Licensing and promoting regional rural banks.
- Allowing new small finance banks and payment banks.
- Leveraging technology – mobile banking, micro ATMs.
- Business correspondents to provide doorstep banking.
- Relaxing KYC norms for small accounts.
- Promoting self – help groups and microfinance.
AP 10th Class Social Economics 3rd Lesson Important Questions: 4 Marks
Question 1.
How does the use of money make it easier to exchange things? Give an example.
Answer:
Money makes exchanging things easier as:
- Money has general acceptability.
- Its price remains constant compared to other commodities.
- It can be stored easily and doesn’t need much space.
- It is in the form of authorised paper currency which gives the gaurantee of the mentioned price to the owner.
- Example: A shoe manufacturer wishes to sell his shoes and buy potatoes. He would sell his shoes in the market for money and then use the money to buy potatoes.
Question 2.
Read the following source and answer the questions that follow:
A House Loan
Megha has taken a loan of 5 lakhs from the bank to purchase a house. The annual interest rate on the loan is 12 percent and the loan is to be repaid in 10 years in monthly installments. Megha had to submit to the bank, documents showing her employment records and salary before the bank agreed to give her the loan. The bank retained as collateral the papers of the new house, which will be returned to j Megha only when she repays the entire loan with interest. |
i) From which house of credit Megha has taken loan?
ii) Explain the terms of credit given in the source.
Answer:
i) Megha has taken loan from bank which is the formal sector of credit,
ii) The following terms of credit are mentioned in the given passage:
a) Interest Rate (12%).
b) Repayment duration (10 years).
c) Repayment mode (Monthly installments).
d) Collateral (Documents of house).
e) Documents required (Employment records and salary slips).
Question 3.
Describe the significance of the Reserve Bank of India.
Answer:
The significances of the Reserve Bank of India are discussed below:
- RBI acts as a banker to the government and is the custodian of the foreign exchange reserves of the economy.
- It issues currency notes on behalf of the central government.
- It supervises the functioning of formal source of loans.
- RBI monitors the banks and make sure that they maintain minimum reserves as per the guidelines of Central Bank.
- It sees that banks give loans not just to big traders but also to small borrowers, small cultivators etc. Periodically banks have to submit information to RBI on how much they are lending, to whom, at what interest rate, etc.
- RBI ensure that the banking system of the country does not suffer from any setback and money market remains stable.
Question 4.
How do demand deposits have the essential features of money? Explain.
Answer:
- Workers who receive their salaries often open a bank account in their name and deposit their extra money. This amount earns some interest and remains safe with the bank.
- Since these can be withdrawn, those are known as demand deposits. These share the essential features as money.
- Demand deposits enable the payment by cheque.
- A cheque is a piece of paper instructing the banks to pay a certain amount from the person’s bank account to the person in whose name the cheque has been issued.
- Thus demand deposits as well as paper money constitute currency in the modern economics.
Question 5.
Why is it necessary to increase a large number of banks mainly in rural areas? Explain.
Answer:
Increased the number of banks needed in rural areas due to the following reasons:
- To develop the habit of saving among the villagers and to give loans to the farmers for boosting production.
- The informal sector charges a higher rate of interest which make loans very expensive. Also, there are no external organizations controlling the credit activities of lenders. This put rural poor into debt trap.
- Informal sector involves high degree of risk as there are no proper set of rules for repayment and there is a lot of exploitation of poor farmers,
- Informal sector lenders may exploit the borrowers, they may engage in threats and intimidation to ensure repayment of loans. There is no written agreement between the lender and the borrower.
Question 6.
“Deposits with the banks are beneficial to the depositers as well as to the nation.” Examine the statement.
Answer:
Deposits with banks are beneficial to the depositors as well as to the nation because:
Benefit to the depositor
- People’s money is safe with the bank,
- People can withdraw the money as and when they require.
- Bank accepts the deposits and pays interest to the depositor.
Benefits to the nation
- Banks mediate between those who have surplus funds and those are in need of these funds.
- Huge demand for loans for various economic activities.
- Banks use the major proportion of the deposit to extend loans.
Question 7.
Explain the three important terms of Credit.
Answer:
i) Credit means a loan, an agreement in which the lender supplies the borrower with money, goods or services which is to be returned in future,
ii) Three important terms of credits are:
a) Interest Rate : The extra money on the principal amount the borrower has to pay.
b) Collateral : It is the security that the borrower has to deport to the lender. It can be house documents, gold, etc.
c) Mode of payment : This is the duration for which the loan is to be repaid. Long¬term loans can be repaid in 12 months, 6 months, or monthly instalments.
Question 8.
Describe the importance of formal sources of credit in the economic development.
Answer:
Importance of formal sources of credit in economic development are as follows:
- It provides fixed interest rate to all sections of society.
- It limits the scope of using unfair means to repay the payment.
- The formal credit charge less interest rate and accessible to all, rich or poor.
- Monitored by the Reserve Bank of India or regulated by the Government of India and thus helps in bringing order to the system of lending and borrowing in the country.
Question 9.
Explain the functions of “Self Help Group”.
Answer:
Self-help groups are informal groups of people who come together to address their common problems.
- They build the functional capacity of poor and marginalised sections of society in the areas of employment and income-generating activities.
- They offers collateral-free loans to the sections of people that generally find it hard to get loans from banks.
- They resolve conflicts through mutual discussions and collective leadership.
- They also the platform for rural women to discuss their social issues.
Question 10.
How do Self Help Groups help borrowers to overcome the problem of lack of collateral? Explain.
Answer:
- In a self-help group, members can take small loans from the group itself to meet their needs without any collateral, The Group charges less interest on their loans than the money lenders charge.
- Most of the decisions regarding savings and loan activities are taken by the group members. The group decides as regards the loans to be granted, the purpose amount, interest to be charged, repayment schedule, etc.
- The group is responsible for the repayment of the loan. Any case of non-repayment of a loan by any one member is followed up seriously by other members of the group.
- The formal sector is willing to lend to the members of SHGs because of their good track record of managing credit.
Question 11.
What is a collateral? Why is it a main reason to prevent the poor getting a loan from banks? Explain.
Answer:
- Collateral is a type of security taken by banks from their customers. It can be in the form of a fixed deposit, property documents, etc.
- The reasons that prevent poor people from taking credit from banks are:
- The rural poor have very little savings. It is quite difficult for them to offer collateral to the bank in order to obtain loans.
- Absence of proper documentation.
- They are not literate enough to fulfil the qualifications and conditions of the bank for providing loans.
Question 12.
Explain the significance of The Reserve Bank of India in the Indian economy.
Answer:
- It supervises the functioning of formal sources of loans.
- The banks maintain a minimum cash balance out of the deposits they receive.
- The RBI monitors that the banks actually maintain the cash balance.
- The RBI sees that the banks give loans not just to profit-making businesses and traders but also to small cultivators, small scale industries, to small borrowers etc.
- Periodically, banks, have to submit information to the RBI on how much they are lending, to whom, at what interest rate, etc.
Question 13.
“Bank plays an important role in the economic development of the country.” Support the statement with examples.
Answer:
Bank plays an important role in the economic development of the country in many ways:
- Provides loan in rural area for crop production and small businesses ultimately resulting in the development of many places.
- Provides loan to create fixed assets that will create employment opportunities.
- Acts as a link between savers and investors.
- The Bank accepts the deposit and pay an amount as interest on the deposit which encourage savings.
- Deposits are used to extend loan for various profitable events.
Question 14.
Credit sometimes pushes the borrower into a situation from which recovery is very painful” Support the statement with examples.
Answer:
Bank is a formal source of credit and in some situations the borrower would not able to repay loan. This pushes them in the situation of debt trap.
Example:
- In case of rural areas, if crop fails due to natural factors it will be difficult for the farmers to pay loan.
- In case of failure of a business, it will be difficult for the businessman to repay the credit.
- In case of high risk business, failure without some support can push borrower in painful situation.
- In many cases, people has to sell their land and fixed assets to repay loan.
Question 15.
What are the two categories of sources of credit? Mention tour features of each.
Answer:
- The two sources of credit are formal sources and informal sources: Formal sources of credit: Banks and cooperative societies fall under the formal sector.
- One can obtain loans from banks or cooperative societies.
- The informal sector credit includes all those credit sources that do not have any organization to supervise them.
- Local/landlords and friends are examples of informal sources of credit.
Question 16.
“Self Help Groups” help borrowers to overcome the problems of lack of collateral” Examine the statement.
Answer:
“Self Help Groups” help borrowers to overcome the problems of lack of collateral in the following ways:
- In a “Self Help Group” most of the important decisions regarding savings and loan activities are taken by the group members.
- The group responsible for the repayment of the loan.
- In case of non-repayment of loan by any member is followed up seriously by other members in the group.
- Because of this banks are willing to lend to the poor woman. When organised in SHGS, even though they have no substantial collateral.
Question 17.
Explain the evolution of money?
Answer:
- Limitations of barter system led to need for money.
- Commodity money like grains, cattle initially used.
- Then came metallic coins of gold, silver, copper.
- Paper currency backed by gold/silver evolved later.
- Fiat money without intrinsic value common today.
- Credit money like bank deposits, e – money emerging.
Question 18.
Discuss the functions of money.
Answer:
- Medium of exchange eliminates double coincidence of wants.
- Measure of value – common unit to quote prices of goods.
- Store of value -ability to store purchasing power over time.
- Deferred payment – facilitates credit transactions over time.
- Transfer of value – facilitates transactions at different locations.
Question 19.
Explain how banks mediate between depositors and borrowers?
Answer:
- Banks accept deposits from people with surplus money.
- Keep a small cash reserve, lend most of the money as loans.
- People needing loans approach banks and borrow at interest rate.
- Difference in interest paid and received is bank’s income.
- Smooth settlements facilitated via cheques and demand deposits.
Question 20.
Discuss the role of RBI with respect to regulating credit and money supply?
Answer:
- Central bank and apex monetary authority of India.
- Issues currency, regulates commercial banking system.
- Maintains stability and liquidity in financial markets.
- Lender of last resort for banks and overseas monetary policy.
- Monitors bank loans to priority sectors and interest rates.
- Supervises bank lending.to prevent excessive credit expansion.
Question 21.
Explain the differences between formal and informal sources of credit?
Answer:
- Formal: Banks, cooperatives; regulated by RBI.
- Informal: Moneylenders, relatives; unregulated.
- Formal loans use collateral; need documentation.
- Informal loans rely on personal knowledge, undocumented.
- Interest rates lower on formal loans.
- Informal loans have outreach; easier access.
Question 22.
What are the problems faced by small farmers and businesses in accessing formal credit?
Answer:
- Lack of collateral acceptable to banks.
- Low value small loans not viable for banks.
- Remote locations and high transaction costs.
- Perception of higher risk; unable to fulfil bank procedures.
Question 23.
How do self – help groups facilitate credit access for the rural poor?
Answer:
- Group savings enables bank linkages.
- Peer pressure ensures timely repayment.
- Reduced transaction costs for banks.
- Credit history and group collateral substitute.
- Doorstep banking suits women constrained by mobility.
Question 24.
Analyze the role of credit in economic development?
Answer:
- Enables investment in new technologies, assets.
- Increases farm productivity and rural incomes.
- Boosts entrepreneurship and non – farm sector growth.
- Allows smoothening of consumption during lean periods.
- Reduces vulnerability of the poor against health, weather shocks.
- But excessive credit can also lead to over – indebtedness.
Question 25.
Discuss the major determinants of credit/loan conditions in India?
Answer.
- Wealth and income levels of the borrower.
- Regulations on interest rates, priority sector lending.
- Collateral and credit history.
- Size and type of lender – bank, moneylender etc,
- Purpose, amount and duration of loan.
Question 26.
What are some of the reasons for expanding formal sector credit in India?
Answer:
- High interest costs of informal loans.
- Unregulated lending practices leading to debt – traps.
- Reaching marginal and small farmers and businesses.
- Long term investment needs not met by informal lenders.
- Financial inclusion of unbanked regions and weaker sections.
Question 27.
Explain the role of collateral and how it creates credit access inequality?
Answer:
- Asset pledged to secure a loan till repayment.
- Helps lender recover money if borrower defaults.
- Poor lack assets acceptable to banks as collateral.
- Depends on wealth levels; the poor are excluded.
- Informal lenders rely on personal knowledge or reputation.
Question 28.
What are some measures to improve credit access for the poor and needy?
Answer:
- Expand coverage of formal institutions through technology.
- Simplify loan procedures and relax norms for small loans.
- Promote financial literacy and counselling services.
- Develop credit evaluation tools suited for the poor.
- Promoteself – help groups and microfinance initiatives.
Question 29.
What are some key features of Self Help Groups and how they help provide credit to the rural poor?
Answer:
- Groups of 15-20 people in neighborhood.
- Regular savings built up functioning as collateral substitute.
- Loans given from group savings or banks using group guarantee.
- Low transaction costs, peer pressure ensures repayment.
- Proximity, doorstep services for women with mobility issues.
Question 30.
How does demonetization affect money supply in an economy? Discuss its aims and consequences.
Answer:
- Withdrawal of legal tender status of certain notes.
- Reduce cash money supply to curb black incomes.
- Push towards digital payments and formalization.
- Caused cash crunch and slowdown of activities initially.
- Inconvenience for many sectors dependent on cash.
- impacted small businesses and rural economy.
Question 31.
How does RBI regulate and supervise the functioning of banks?
Answer:
- Regulates interest rates, cash and liquidity requirements.
- Controls flow of bank credit to different sectors.
- Inspection and audit of bank branches.
- Licensing of banks, regulation of mergers, acquisitions.
- Ensures solvency, avoids overexpansion of credit.
Question 32.
What are the differences between money and other assets?
Answer:
- Money is acceptable as medium of payment.
- Other assets not generally accepted as payment.
- Money acts as intermediate in transaction.
- Money has standardized value as unit of account.
- Other assets might need valuation, may not be easily exchanged.
Question 33.
What are the causes of rising farmer debts in India? Suggest policy measures.
Answer:
- Need for credit for farm inputs, low returns from small holdings.
- Crop failures, volatile output prices due to monsoon, pests.
- High interest rates of informal lenders.
- Lack of affordable credit access from formal lenders.
- Measures needed – expand formal credit, crop insurance, loan waivers.
Question 34.
What are the implications of high – interest rates on informal sector loans?
Answer:
- Reduces borrower’s income left after interest payment.
- Risk of debt traps if loan amount becomes revolving.
- Dissuades investment in productive assets.
- Growth of unregulated lending.
- Policy measures needed to expand affordable formal credit.
Question 35.
How does access to affordable credit impact poverty and inequality?
Answer:
- The poor pay much higher interest rates than large borrowers.
- Reduces incomes and productive investment capacity.
- Widens inequalities in access to capital for entrepreneurship.
- Perpetuates intergenerational cycles of poverty and deprivation.
- Cheaper credit access can build assets, increase social mobility.
Question 36.
What are the roles of financial institutions in an economy?
Answer:
- Mobilize savings and channelize capital.
- Provide payment services reducing transaction costs.
- Reduce risks through insurance, derivatives.
- Monitor investments, exert corporate control.
- Reallocate capital from savers to investors.
- Facilitate trade, risk management, monetary policy.
Question 37.
Read the given extracts and answer the following questions.
Money is anything that is generally accepted as a medium of exchange. Historically, money took die form of commodities likegrains, cattle etc. Metallic coins made of gold, silver and copper represented an improvement because of durability and Standardization of value. Paper currency and. banknotes emerged, later, but had the backing of precious metals. Today’s fiat money has no intrinsic value, but is accepted as a medium of exchange authorised by government. |
Question 1.
What were the early forms of money?
Answer:
Commodities like grains and cattle served as money in early societies.
Question 2.
How did coins represent an improvement over commodities as money?
Answer:
Coins made of metals like gold, silver and copper were more durable and had standardized units of value.
Question 3.
What is flat money?
Answer:
Modern currency that has no intrinsic value in itself but is accepted as money due to government decree.
Question 4.
What is money?
Answer:
Money is anything that is generally accepted as a medium of exchange.
Question 38.
Read the given extracts and answer the following questions.
Expanding formal sources of credit from banks and cooperatives is crucial for development. At present, small farmers and poorer households rely extensively on informal credit at exorbitant interest rates. This reduces incomes and keeps borrowers in debt traps. Formal sector credit needs to expand via regional rural banks, m icro finance and self-help groups. Simpler procedures, alternative credit evaluation mechanisms and leverage of technology can improve access. FinancialUteracyprograms cue also essential. |
Question 1.
Why is expansion of formal credit important?
Answer:
To reduce dependence of farmers and poorer sections on expensive informal credit.
Question 2.
What are the limitations of informal credit?
Answer:
Very high interest rates leading to debt traps that reduce incomes of borrowers.
Question 3.
What are some ways formal credit access can be improved?
Answer:
Simpler procedures, alternative credit evaluation methods, using technology, promoting microfinance and SHGs.
Question 4.
What is crucial for development ?
Answer:
Expanding formal sources of credit from banks and cooperatives is crucial for development.
Question 39.
Read the given extracts and answer the following questions.
Letus take the story of banks further, What do the banks do with the deposits which they accept from the public? There is an Meresting mechanism at work here. Banks keep only a small proportion of their deposits as cash with themselves. For example, banks in India these days hold about 15 per Cent Of their deposits as bash. This is kept as provision to pay the depositors who might cofne to withdraw money from die bank on any given day. Since, on any particular day, only some of its many depositors come to withdraw cash, the bank is able to manage with this cash. |
Question 1.
What is the significance of banks in the modern economy?
Answer:
Banks play a crucial role in the modern cocnomy by providing a range of financial services such as deposit-taking, lending, and investment. They also facilitate transactions and help to allocate capital efficiently.
Question 2.
How do banks create money?
Answer:
Banks create money by making loans. When a bank makes a loan, it creates a deposit in the borrower’s account, which can be used to make payments and withdrawals.
Question 3.
What are some of the risks associated with the banking system?
Answer:
Some of the risks associated with the banking system include credit risk, liquidity risk, and operational risk. Banks also face the risk of runs, where depositors withdraw their funds en masse, leading to a liquidity crisis.
Question 4.
How can the government regulate the banking system to prevent financial crises?
Answer:
The government can regulate the banking system by imposing capital requirements, conducting stress tests, and providing a lender of last resort. These measures can help to prevent financial crises and ensure the stability of the banking system.
AP 10th Class Social Economics 3rd Lesson Important Questions: 2 Marks
Question 1.
How do double coincidence of wants arise?
Answer:
- It arises when a person desires to sell is exactly what the other wishes to buy goods are directly exchanges without the use of money.
- For example, one person has potatoes but is in need of wheat, and another has wheat but is in need of potatoes. Then they will exchange their goods. This exchange is known as a “double coincidence of wants”.
Question 2.
Highlight the inherent problem in double coincidence of wants.
Answer:
- The inherent problem in double coincidence of wants is that both the sides must agree to sell and buy each other’s commodities at the same time.
- For example, one person has tomatoes but is in need of mangoes, and another has mangoes but is in need of tomatoes. Then they will exchange their goods.
Question 3.
Give one example each of modern currency and older currency.
Answer:
- Modern currency: The plastic money that we use in the form of debit and credit cards.
- Older currency: The bronze coins that were used in earlier times.
Question 4.
Differentiate between formal and informal sources of loans.
Answer:
Formal sources of credit follows laws and regulations and supervised by RBI (Reserve Bank of India. For eg. Banker Cooperation. Informal Sources of Credit is not supervised by any organisation. It does not follow any laws and the main aim is to earn profit by charging high rate of interest for eg. money tenders, relatives etc.
Question 5.
State the role of Reserve Bank of India.
Answer:
- The RBI issues currency notes on behalf of the government.
- The RBI manages foreign exchange.
- It is responsible for the formulation of the country’s monetary policy.
- It acts as a banker and financial advisor to the government.
Question 6.
Why do banks or lenders demand collateral against loans?
Answer:
- Collateral is an asset or property that the borrower pledges when getting a loan, such as land, building, vehicle etc.
- This is used as a guarantee by the lender until the loan is repaid. If the borrower fails to repay the loan, the lender is free to sell the collateral and reimburse his aihount.
- Thus, collateral acts like a guarantee against loan.
Question 7.
Analyse the situation in which credit pushes the borrower into a situation from which recovery is painful.
Answer:
- Debt trap pushes the borrower into a situation from which recovery is painful. It is characterised by non-repayment of credit, which leads the borrower into this visions cycle.
- It can be caused by:
a) crop failure
b) use of loan for non-productive purposes. - Therefore, it is crucial for the borrower to analyse the support available in case of loss, before taking a loan.
Question 8.
Explain, why the banks do not lend credit to certain borrowers?
Answer:
The banks do not lend credit to certain borrowers because of the following reasons:
- Banks require proper documents.to raise the loans. Some people fail to meet this requirement.
- Banks require collateral to be submitted against the loan amount. Those who do not have any collateral to submit, fail to get loan from the bank.
- The borrowers who have bad credit history, the banks might not be willing to lend ‘them further.
Question 9.
Explain any three loan activities of banks in India.
Answer:
Activities of banks in India who are involved in providing loan:
- Bank intermediate between the depositors and borrowers.
- Banks offer less interest on deposits than what they demand on loans.
- Banks provide loans for various economic activities.
- Reserve some cash deposits.
Question 10.
Why is modern currency accepted as a medium of exchange without any use of its own? Find out the reason.
Answer:
- The modern currency i.e. rupee, does not have any value of it’s own because it is not as precious as gold and silver, it is made up of paper.
- However it is used for transaction in exchange for some good and services.
- But it is still considered as a medium of exchange, as it is authorized by the Government of India.
Question 11.
Why do most of the rural households still remain dependent on the informal sources of credit? Explain.
Answer:
- Bank loans Require proper documentation and collateral, which are rarely available to poor households.
- In rural India, banks are not present everywhere, although informal sources are readily available in every village.
- Informal sources of credit, such as moneylenders, know the borrowers personally and are often willing to give a loan without collateral.
Question 12.
Cheap and affordable credit is essential for poor households both in rural and urban areas. in the light of the above statement, explain the social and economic values attached to it:
Answer:
- Cheap and affordable credit is essential for Poor households in rural areas because it helps the poor farmers or poor people living there to get loans and then they can invest in either farming or nonfarm activities,
- The cheap word tells that the interest rate would be low so at the end they have to pay less money.
Question 13.
What are the functions of money?
Answer:
- Medium of exchange
- Measure of value
- Store of value
- Deferred payment
- Transfer of value.
Question 14.
What led to the evolution of money?
Answer:
- Limitations of barter system.
- Double coincidence of wants problem.
- Need for a commonly acceptable medium of exchange.
Question 15.
What are the modern forms of money?
Answer:
- Currency notes and coins.
- Bank deposits (demand deposits)
- Cheques, credit/debit cards
Question 16.
How do banks mediate between depositors and borrowers?
Answer:
- Accept deposits and pay interest to depositors.
- Use deposits to give loans to borrowers at higher interest.
- Difference in’interest rate is bank’s income.
Question 17.
What is the role of RBI with respect to money and banking?
Answer:
- Issues currency notes.
- Regulates and supervises commercial banks.
- Ensures financial stability and support for growth.
- Manages monetary policy.
Question 18.
Differentiate between formal and informal sources of credit.
Answer:
- Formal: banks, cooperatives.
- Informal: moneylenders, traders, relatives.
- Formal credit is draper but limited reach.
- Informal serves more people but at higher cost.
Question 19.
What are the problems faced by poor in accessing formal credit?
Answer:
- Lack of collateral.
- High transaction costs.
- Ignorance and procedures.
- Rural people have limited access.
Question 20.
How do self help groups help the poor overcome problems in accessing bank credit?
Answer:
- Pooling of savings reduces bank transaction costs.
- Group stands as collateral substitute.
- Peer pressure ensures repayment.
- Doorstep banking for small deposits.
Question 21.
What are the terms of credit?
Answer:
- Interest rate charged.
- Collateral or security required.
- Documentation procedures.
- Mode and frequency of repayment.
Question 22.
What is a debt trap?
Answer:
- Loan repayment impossible leading to growing debt.
- Vicious cycle of new loans to repay old ones.
- Causes loss of assets and impoverishment.
Question 23.
How does money act as a medium of exchange?
Answer:
- Eliminates need for double coincidence of wants.
- Goods can be exchanged for money and money for other goods.
- Makes transactions easy by serving as intermediate.
Question 24.
What is demonetization? What was its impact?
Answer:
- Withdrawing legal tender of some notes.
- Aims to curb black money and fake currency.
- Caused cash crunch, slowdown in activities.
- Pushed digital payments.
Question 25.
What are the sources of credit for small and marginal farmers?
Answer:
- Cooperative banks and societies.
- Regional rural banks.
- Microfinance institutions.
- Informal – moneylenders, traders, landlords.
Question 26.
How can cheaper credit be made available to the poor?
Answer:
- Expanding outreach of formal credit.
- Promoting SHGs and microfinance.
- Simplifying loan procedures.
- Developing doorstep banking using IT.
Question 27.
What information do banks have to provide to RBI?
Answer:
- Cash reserve ratio.
- Lending to priority sectors.
- Interest rates.
- Bad debts and NPAs.
- Any other information sought.
Question 28.
What is the importance of credit for development?
Answer:
- Enables investment, asset creation.
- Increases incomes, employment and output.
- Smoothens consumption during lean periods.
- Reduces vulnerability to shocks.
Question 29.
What is collateral? Why is it required?
Answer:
- Asset pledged as security for a loan.
- Ensures repayment by borrower.
- Can be sold to recover loan if defaulted.
Question 30.
How can hanks ensure wider access to credit for all sections?
Answer:
- Simplify and relax procedures.
- Use alternative credit scoring models.
- Leverage technology for low cost delivery.
- Promote and collaborate with SHGs.
Question 31.
Why should the dependence on informal credit be reduced?
Answer:
- Very high interest rates.
- Can lead to debt traps.
- Unregulated lending practices.
- Not ideal for long term investment needs.
Question 32.
Why is cheap and affordable credit important forthe country’s development? Explain any three reasons.
Answer:
Cheap and affordable credit plays a crucial role for the country’s development due to the following reasons:
- To meet the on going expenses of production and thereby develop their business in agricultural and industrial areas.
- It raises the standard of living and social status of the common man. lip For middle class people, loans help a lot in constructing their houses and to get rid of monthly rents.
AP 10th Class Social Economics 3rd Lesson Important Questions: 1 Mark
Question 1.
Rahul has a sack of cotton but he is in need of wheat and Antusi has a sack of wheat and is in need of cotton, under this situation both will be ableto exchange their goods. In case of absence of such colncidence of waits, they maly not exchange. their goods. (D)
Which one of the following would be the best option that dofClfbes the mutual exchange of goods a»d eliminate the exchange of goods?
Options:
A) Double coincidence of want, Exchanging commodity for commodity
B) Double Coincidence of want, Credit on Commodity
C) Double coincidence of want, Loan on commodity
D) Double coincidence of want, Money
Question 2.
Which among the following organisations issues the currency Dotes in India? (D)
A) The Central Government of India
B) The NITI Aayog
C) The Finance Ministry
D) The Reserve Bank of India
Question 3.
Which one of the following is the modern form of currency? (A)
A) Paper notes
B) Gold coins
C) Silver coins
D) Copper coins
Question 4.
Which among the following Issues currency notes on b&iatfiof the Central Government?(B)
A) State Bank of India
B) Reserve Bank of India
C) Commercial Bank of India
D) Union Bank of India
Question 5.
Read the information given below and select the correct option (B)
Rohan has taken a loan of Rs.5 lakhs from the bank to rate of interest. He has to submit papers of new home and salary record to the bank What is this process called as? |
A) Interest Rate
B) Collateral
C) Principal Amount
D) Instalments
Question 6.
Which Is the main source of credit for rich urban households?
Answer:
Banks are the main source-of credit for rich urban households.
Question 7.
Miss “S” approached a bank nearby to avail loan for her own business, as well as a Self-help group Which is operating in her village, the bank rejected her loan application whereas the Self-help group accepted to support her by providing the loan. (C)
Which one of the following documents is required by the bank, but not required by the self-help group to approve Miss “S’s” loan application for her business?
A) Application for loans
B) Arrangement Letter.
C) Document on Collateral
D) Demand promissory note and take delivery letter.
Question 8.
What is meant by Double Coincidence of wants?
Answer:
Double Coincidence of wants refers to situation when both the parties agrees to sell and buy each other’s commodities.
Question 9.
How does money act as a medium of exchange?
Answer:
Money acts as a medium of exchange because it acts as an efficient link between the exchange of commodities.
Question 10.
Why is the supervision of the functioning of formal sources of loans necessary”
Answer:
Supervision of the functioning of formal sources of loans is necessary because banks have to submit information to the RBI on how much they are lending, to whom they are lending and at what interest rate.
Question 11.
What is money?
Answer:
Money is anything that serves as a medium of exchange.
Question 12.
Name two modern forms of money.
Answer:
Currency notes and coins, bank deposits.
Question 13.
What is collateral for a loan?
Answer:
Assets pledged to secure a loan.
Question 14.
What is the double coincidence of wants?
Answer:
Both parties having exactly what the other wants for barter.
Question 15.
How do banks use deposits to lend?
Answer:
Keep a small cash reserve, lend rest to borrowers.
Question 16.
Why is credit necessary in economic development?
Answer:
Credit supports investment and innovation.
Question 17.
What is the role of the Reserve Bank of India?
Answer:
Supervising the functioning of banks.
Question 18.
What are the potential risks associated with credit?
Answer:
Borrowers may become trapped in debt.
Question 19.
How do lenders determine the terms of credit?
Answer:
Based on the borrower’s credit history.
Question 20.
What is the significance of credit in economic life?
Answer:
Credit ensures that everyone has access to money.
Question 21.
Why do lenders ask for collateral while lending?
Answer:
To ensure that borrowers will repay the loan.
Question 22.
What are the sources of credit in Sonpur?
Answer:
Banks and informal lenders provide credit in Sonpur.
Question 23.
What is the purpose of SHGs for the poor?
Answer:
To ensure that the poor have access to credit.
Question 24.
Why might banks be unwilling to tend to small farmers?
Answer:
Small farmers cannot provide collateral.
Question 25.
What is the annual interest rate on Megha’s housing loan?
Answer:
12%.
Question 26.
What is the criterion for classification when determining who might get a bank loan ?
Answer:
Occupation.
Question 27.
What are the factors that determine the terms of credit?
Answer:
Interest rates, collateral, documentation requirements.
Question 28.
Arrange the following in the correct sequence of steps involved in obtaining a bank loan for a house.
Repayment in monthly installments, submitting employment records and sadary, providing collateral
Answer:
Providing collateral, submitting employment records and salary, repayment in monthly installments.
Question 29.
Match the following:
a) Money and Credit go together 1) Credit arrangements in different areas
b) Forms of Credit 2) Different types of cooperatives
c) Sources of Credit 3) Link between money and services
Answer:
a-3
b-2,
c-1
Question 30.
Match the type of credit source with its characteristics:
a) Banks 1) Offers loans with minimal documentation requirements
b) Cooperative societies 2) Provides loans at low interest rates
c) Informal lenders 3) Requires collateral for loan approval
d) SHGs 4) Decisions on savings and loan taken by members
Answer:
a-3
b-2,
c-1,
d-4
Question 31.
Assertion : Money serves as a medium of exchange.
Reason : People prefer to receive payments in money and then exchange it for things they want.
Write the correct explanation from the following.
A) Both the assertion and the reason are correct, and the reason explains the assertion.
B) Both the assertion and the reason are correct, but the reason does not explain the assertion.
C) The assertion is correct, but the reason is incorrect.
D) The assertion is incorrect, but the reason is correct.
Answer:
Both the assertion and the reason are correct, and the reason explains the assertion.