NCERT Economics Class 10 Chapter 3 Money and Credit CBSE Board Sample Problems Short Answer (For CBSE, ICSE, IAS, NET, NRA 2022)

Glide to success with Doorsteptutor material for CBSE : fully solved questions with step-by-step explanation- practice your way to success.

Question

What are demand deposits? How is money safe in the banks? Explain.

Solution

  • Deposits in the bank account which are payable on demand are called demand deposits.
  • Banks accept deposits from number of people.
  • Some part of that money is given out as loan and the other part is kept with the banks for making payments.
  • So, the money is safe with the banks. The depositors can withdraw their money whenever they want.

Question

How can money be easily exchange for goods or services? Give an example to explain.

Solution

  • Transactions are made in money because a person holding money can easily exchange it for any commodity or a service. It solves the problem of double coincidence of wants by acting as a medium of exchange.
  • For example, a shoe manufacturer wants to sell shoes in the market and wants to buy rice. Under barter system, both parties selling shoes and rice have to agree to buy and sell each other՚s commodities and this creates a problem which is referred to as double coincidence of wants.
  • This problem is overcome by the introduction of money. Now, the shoe manufacturer will sell the shoes for money and with that money he can buy rice.

Question

In what ways does the Reserve Bank of India supervise the functioning of banks?

Solution

Supervisory of the functioning of banks is done by the Reserve

Bank of India in following ways:

  • It looks over the banks in maintenance of cash balance
  • It also keeps on checking that the banks instead of giving loans only to the profit-making businesses and to the traders, they also provide loans to the small-scale industries and small farmers etc.
  • With the passage of time the bank submits the information regarding lending and interest rates etc.

Question

Why do we need a bank? What services do banks provide?

What is the major source of income of a bank?

Solution

In modern times, Banks are required for the vision of daily economic work and national and international trade.

Services:-

  • To create a sense of savings among the people.
  • Protecting savings.
  • Pay interest on savings.
  • The bank allows us to withdraw our deposits when required.
  • The major source of income of a bank is the difference between the interest rate of the demand deposit and the credit.

Question

Differentiate between the formal and informal source of credit.

Solution

Differentiate between the Formal and Informal Source of Credit
FORMAL SECTOR CREDITINFORMAL SECTOR CREDIT
1. It is provided by banks and cooperatives.1. It is provided by moneylenders, employers, traders, etc.
2. It is supervised by the RBI. It checks the interest rate and other details periodically,2. There is no organization to supervise informal sector credit.
3. The loans provided are at a cheap and affordable rate of interest,3. The rate of interest is very high and most of the times result in exploitation of borrower.
4. Proper terms of credit like documentation, collateral, and the rate of interest are followed.4. Terms of credit are flexible.

Question

How does money solve the problem of ‘double coincidence of wants’ ? Explain with an example?

Solution

  • Before the introduction of money as a medium of exchange, the Double coincidence of wants functioned as the medium of exchange between people. Double coincidence of wants or the barter system was a system based on the exchange of commodities.
  • In a double coincidence of wants, a person, say a farmer bought shoes from a cobbler in exchange for his grain. But this could happen only when the cobbler was also in need of grain.
  • Therefore, in this system, both the parties had to agree to buy and sell each other՚s commodities.
  • Money, as a medium of transaction, essentially solved this problem because, through money, one could buy and sell whatever he/she wants at any particular point of time, without any agreement of buying and selling in terms of commodities.

Question

Describe the meaning and function of the currency?

Solution

Currency is accepted as a medium of exchange like - notes, coins. Functions -

  • Measuring value
  • Accumulation of value
  • Deferred Payment Value
  • Basis of credit
  • It distributes national income.
  • It provides liquidity.

Question

‘Credit has its own unique role for development.’ Justify the statement with arguments.

Solution

  • Credit has a unique role in the economic development of the country. It is needed by all the three sectors of the economy.
  • In urban sector, big businessmen and small manufacturers need loans either to expand their enterprises, bring new technology or diversifying their businesses.
  • In rural sector, the main demand for credit is for crop production. Crop production involves cost of seeds, fertilizers, pesticides, water, electricity, repair of equipments. Cheap credit would thus lead to increase in production.
  • Even tertiary sector needs loans to buy the latest equipments and technology. Thus, we can say that credit has a unique role in the development of a country.

Question

“The credit activities of the informal sector should be discouraged.” Support the statement with arguments.

Solution

  • The credit activities of the informal sector should be discouraged because:
  • There is no organization to supervise the credit activities of the lenders in informal sector.
  • The informal sector lends at a very high rate of interest and use unfair means to get the money back.
  • Higher cost of borrowing means a large part of the earnings of the borrowers is used to repay the loan. Hence, the borrowers have less income left for themselves.
  • Sometimes, due to higher rate of interest, the amount to be repaid becomes higher than the income of the borrower due to that there is always a risk for borrowers to fall in debt-trap.

Question

How can money be easily exchange for goods or services? Give an example to explain.

Solution

  • Transactions are made in money because a person holding money can easily exchange it for any commodity or a service. It solves the problem of double coincidence of wants by acting as a medium of exchange.
  • For example, a shoe manufacturer wants to sell shoes in the market and wants to buy rice. Under barter system, both parties selling shoes and rice have to agree to buy and sell each other՚s commodities and this creates a problem which is referred to as double coincidence of wants.
  • This problem is overcome by the introduction of money. Now, the shoe manufacturer will sell the shoes for money and with that money he can buy rice.