Money and Credit — Class 10 Social Science NCERT Solutions (Free)
Free step-by-step NCERT solutions for Class 10 Social Science chapter "Money and Credit" — 6 important questions with detailed answers for CBSE board exam preparation.
TL;DR: Free step-by-step NCERT solutions for Class 10 Social Science chapter "Money and Credit" — 6 important questions with detailed answers for CBSE board…
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NCERT Solutions for Class 10 Social Science — Money and Credit. Step-by-step answers to all 6 textbook questions from this chapter, written for CBSE board preparation and free to use.
Money and Credit — All 6 Questions Solved
Q1. What is money and what are its main functions?
Money is a medium of exchange universally accepted in transactions. Main functions include: (1) Medium of exchange—enables trade without barter, (2) Store of value—money can be saved and used later, (3) Unit of account—prices expressed in monetary units, (4) Standard for deferred payment—facilitates credit transactions. Money evolved from commodities like gold to government-issued currency.
Q2. What are the different types of money in the modern economy?
Types include: (1) Fiat money—currency declared legal tender by government with no intrinsic value, backed by government authority, (2) Commodity money—money with intrinsic value like gold, (3) Bank money—credit in the form of deposits and loans, (4) Digital money—cryptocurrency and digital payments. Modern economies primarily use fiat money and bank money.
Q3. What is credit and what role does it play in the economy?
Credit is the provision of resources by a lender to a borrower with repayment expected later. Credit enables: (1) Consumption smoothing—buying things before having cash, (2) Investment—businesses borrowing for expansion, (3) Economic growth—capital available for productive use. Banks provide most credit. Credit is essential for modern economies but excessive credit can cause financial crises.
Q4. What is the role of banks in the economy and in credit provision?
Banks accept deposits from savers and provide loans to borrowers. They: (1) Pool resources from many depositors for lending, (2) Assess creditworthiness of borrowers, (3) Provide financial services like money transfer and insurance, (4) Create money through credit expansion, (5) Support investment and consumption. Banks are central to financial systems and economic growth.
Q5. What are the differences between formal and informal credit sectors?
Formal credit comes from banks, government institutions, and regulated lenders. It involves documentation, interest rates, and legal protections. Informal credit comes from moneylenders, traders, and relatives, often without documentation and at high interest rates. While formal credit is regulated and safer, informal credit is more accessible to poor and rural populations. Both sectors coexist in India.
Q6. What measures can expand access to credit for poor and marginalized groups?
Measures include: (1) Microfinance institutions providing small loans, (2) Self-help groups enabling cooperative borrowing, (3) Government schemes providing subsidized credit, (4) Reducing documentation requirements, (5) Financial inclusion through banking outreach, (6) Skill development enabling productive use of credit, (7) Regulation of informal lenders preventing exploitation. Expanded credit access promotes economic opportunity.
Money and Credit — Practice MCQs with Answers
Attempt these 20 multiple-choice questions after working through the solutions above. Each carries the correct option and the reasoning behind it, so a wrong answer tells you which idea to revisit.
MCQ 1. Which of the following is a major limitation of the barter system?
- A. It requires a common medium of exchange.
- B. It promotes specialization in production.
- C. It requires a 'double coincidence of wants'.
- D. It allows for easy storage of wealth.
Answer: C. It requires a 'double coincidence of wants'. — The barter system fundamentally requires both parties to agree to exchange exactly what the other desires, which is known as a double coincidence of wants.
MCQ 2. What are 'demand deposits' in the context of modern forms of money?
- A. Deposits that can only be withdrawn after a fixed period.
- B. Deposits that cannot be withdrawn easily.
- C. Deposits that are kept for long-term investments only.
- D. Deposits that can be withdrawn on demand by issuing a cheque or using other digital means.
Answer: D. Deposits that can be withdrawn on demand by issuing a cheque or using other digital means. — Demand deposits are a flexible form of money as they allow individuals to access their funds at any time, making them a crucial part of the modern monetary system.
MCQ 3. How do banks mediate between depositors and borrowers?
- A. By keeping 100% of deposits as reserves.
- B. By charging the same interest rate on deposits and loans.
- C. By using a major portion of the deposits to extend loans and paying interest to depositors.
- D. By discouraging deposits and focusing only on lending.
Answer: C. By using a major portion of the deposits to extend loans and paying interest to depositors. — Banks use the deposits they receive to provide loans, charging a higher interest rate on loans than they pay on deposits, thus facilitating economic activity and earning profit.
MCQ 4. In a rural scenario, why might a small farmer borrowing from a moneylender fall into a debt trap?
- A. Moneylenders offer very low interest rates.
- B. Moneylenders usually demand collateral like land, which is easily available.
- C. High interest rates charged by moneylenders, combined with uncertain crop yields, make repayment difficult.
- D. Informal loans from moneylenders always lead to higher production.
Answer: C. High interest rates charged by moneylenders, combined with uncertain crop yields, make repayment difficult. — The high interest rates of informal loans from moneylenders, coupled with the unpredictable nature of agricultural income, often make it impossible for farmers to repay, leading to a vicious cycle of debt.
MCQ 5. What is 'collateral' in the context of credit?
- A. The interest rate charged on a loan.
- B. A security or asset pledged by the borrower to the lender until the loan is repaid.
- C. The duration for which a loan is granted.
- D. The total amount of money borrowed.
Answer: B. A security or asset pledged by the borrower to the lender until the loan is repaid. — Collateral serves as a guarantee to the lender that if the borrower defaults on the loan, the lender can sell the asset to recover their money.
MCQ 6. Which of the following is NOT a source of formal sector credit in India?
- A. Commercial Banks
- B. Cooperative Societies
- C. Moneylenders
- D. Regional Rural Banks
Answer: C. Moneylenders — Moneylenders operate outside the direct supervision of the Reserve Bank of India and typically charge very high interest rates, classifying them as part of the informal credit sector.
MCQ 7. Why does the Reserve Bank of India (RBI) supervise the functioning of formal sources of credit?
- A. To ensure banks earn maximum profit.
- B. To ensure banks lend only to rich people.
- C. To ensure banks maintain minimum cash balances and lend to small cultivators, small-scale industries, and small borrowers.
- D. To encourage banks to increase interest rates.
Answer: C. To ensure banks maintain minimum cash balances and lend to small cultivators, small-scale industries, and small borrowers. — The RBI's supervision aims to maintain financial stability and ensure that a fair share of credit is directed towards priority sectors and small borrowers, preventing banks from neglecting their social responsibilities.
MCQ 8. What is the primary characteristic of informal sector lenders compared to formal sector lenders?
- A. They charge lower interest rates.
- B. They require more documentation and collateral.
- C. They have no organization to supervise them.
- D. They provide loans only for productive purposes.
Answer: C. They have no organization to supervise them. — Informal lenders operate without any official oversight, which often leads to exploitative practices like high interest rates and unfair terms.
MCQ 9. What is the main objective of Self-Help Groups (SHGs)?
- A. To provide expensive loans to the poor without collateral.
- B. To primarily act as a platform for political discussions.
- C. To pool savings of members and provide small loans without collateral at reasonable interest rates.
- D. To compete with commercial banks in urban areas.
Answer: C. To pool savings of members and provide small loans without collateral at reasonable interest rates. — SHGs empower rural poor, especially women, by enabling them to pool small savings and access credit at affordable rates, thereby improving their economic independence and social standing.
MCQ 10. Why is it important for banks and cooperative societies to increase their lending in rural areas?
- A. To increase the profits of banks.
- B. To reduce the dependence of rural households on expensive informal sources of credit.
- C. To promote only commercial farming.
- D. To make loans available only to large farmers.
Answer: B. To reduce the dependence of rural households on expensive informal sources of credit. — Increasing formal credit in rural areas helps to curb the exploitation by informal lenders, ensuring that more people, especially the poor, can access affordable credit for productive activities.
MCQ 11. Which of the following is a key element of the 'terms of credit'?
- A. The color of the currency notes.
- B. The borrower's social status.
- C. Collateral and interest rate.
- D. The lender's political affiliation.
Answer: C. Collateral and interest rate. — Terms of credit define the conditions under which a loan is granted, with interest rate, collateral, documentation, and mode of repayment being the most crucial components.
MCQ 12. A cheque is a paper instructing the bank to pay a specific amount from the person’s account to whom?
- A. To the government.
- B. To the Reserve Bank of India.
- C. To the person in whose name the cheque has been issued.
- D. To any bank employee.
Answer: C. To the person in whose name the cheque has been issued. — A cheque functions as a written order to a bank to transfer a specified sum of money from the drawer's account to the payee, whose name is written on the cheque.
MCQ 13. What is the primary reason that modern currency is accepted as a medium of exchange?
- A. It is made of precious metals like gold and silver.
- B. It is intrinsically valuable and can be used for other purposes.
- C. It is authorised by the government of the country.
- D. It can be easily converted into grains or cattle.
Answer: C. It is authorised by the government of the country. — Modern currency, unlike commodity money, has no intrinsic value but is accepted as legal tender because it is backed and guaranteed by the government.
MCQ 14. Which of the following situations exemplifies a 'positive' use of credit?
- A. A farmer taking a loan for seeds and fertilizers, leading to a good harvest and profit.
- B. A person borrowing at high interest rates for a wedding, leading to unpaid debt.
- C. A small business owner taking a loan for daily expenses, falling behind on repayments.
- D. A student taking a loan for a luxury item, unable to repay after graduation.
Answer: A. A farmer taking a loan for seeds and fertilizers, leading to a good harvest and profit. — Credit is beneficial when it enables productive investments that generate income, allowing for easy repayment and overall economic growth, as seen in the farmer's case.
MCQ 15. The Reserve Bank of India (RBI) issues currency notes on behalf of whom?
- A. Commercial banks.
- B. Private businesses.
- C. The Central Government.
- D. State Governments.
Answer: C. The Central Government. — The RBI acts as the sole authority for issuing currency in India, doing so under the mandate and authority of the Central Government, ensuring consistency and trust in the currency.
MCQ 16. One of the key functions of the RBI in supervising banks is to ensure that banks give loans not just to profit-making businesses and traders but also to whom?
- A. Only to large industrialists.
- B. Small cultivators, small-scale industries, and small borrowers.
- C. Only to government officials.
- D. Foreign investors exclusively.
Answer: B. Small cultivators, small-scale industries, and small borrowers. — The RBI's supervision ensures that banks adhere to priority sector lending norms, directing credit towards vital sectors and vulnerable groups to promote inclusive economic growth.
MCQ 17. Apart from providing credit, what other significant social benefit do Self-Help Groups (SHGs) offer to their members?
- A. They provide a platform for members to take up social issues like health and domestic violence.
- B. They encourage members to migrate to urban areas for better jobs.
- C. They promote isolation among women members.
- D. They discourage political participation of their members.
Answer: A. They provide a platform for members to take up social issues like health and domestic violence. — SHGs not only provide financial support but also serve as crucial platforms for women to discuss social issues, gain confidence, and collectively advocate for their rights, leading to empowerment.
MCQ 18. Why do informal lenders usually demand little or no collateral from borrowers?
- A. They trust their borrowers completely.
- B. They have easy access to legal systems to recover debts.
- C. They often know the borrower personally and rely on other means to ensure repayment, like harassment or personal ties.
- D. They are supervised by the RBI to be lenient.
Answer: C. They often know the borrower personally and rely on other means to ensure repayment, like harassment or personal ties. — Informal lenders often have close personal ties or leverage social pressure and threats of violence to ensure repayment, making formal collateral less critical for them.
MCQ 19. Which among the following would be an appropriate indicator of an inclusive and equitable credit system?
- A. Formal sector credit constitutes a very small share of the total credit.
- B. High dependence of the poor on moneylenders.
- C. Loans are easily available to all, irrespective of their social or economic background, at affordable rates.
- D. Commercial banks focusing only on large corporations.
Answer: C. Loans are easily available to all, irrespective of their social or economic background, at affordable rates. — An inclusive credit system ensures that everyone, especially the poor and marginalized, has access to affordable and fair credit, thereby fostering economic participation and reducing inequality.
MCQ 20. In the context of banking, what is the term used for the money deposited in banks that can be withdrawn at any time?
- A. Time deposits
- B. Fixed deposits
- C. Savings deposits
- D. Demand deposits
Answer: D. Demand deposits — Demand deposits are funds held in a bank account that can be withdrawn at any time, typically without prior notice, making them highly liquid and part of the money supply.
How to Use These Solutions
Attempt each question yourself first and only then compare with the worked answer. Marks in the CBSE board exam are awarded for the METHOD as much as the final result, so reproduce the steps rather than memorising the last line. Where a solution states a law, a formula or a definition, learn that wording — examiners look for it.
Related practice for this chapter: chapter MCQs, previous-year questions, revision notes and sample papers.