Class Ten NCERT Solutions Economics Chapter 3

Chapter 3: Money and Credit (NCERT Solutions)


1. In situations with high risks, credit might create further problems for the borrower. Explain.

Ans. The high-risk situation occurs mainly in rural areas due to the great demand for credit for agricultural purposes. Credit might create the following problems.

(i) There is a minimum stretch of 3–4 months between the time when farmers buy inputs and when they sell the crop.

(ii) Repayment of loans is crucially dependent on the income from farming.

(iii) Crop failure makes repayment of loan almost impossible.

(iv) To repay the loan, farmers have to sell a portion of their land.

(v) This pushes farmers into a debt trap from which recovery is very painful.

2. How does money solve the problem of double coincidence of wants? Explain with an example of your own.

Ans. Things exchanged for other things without the use of money is known as the barter system. Money eliminates the problem of double coincidence of wants in the following ways:

(i) There is no need to have goods and commodities for exchange.

(ii) Money acts as an intermediate in the exchange process or as a medium of exchange.

(iii) One can easily exchange their goods in exchange for money and later on pay money for the desired commodities.

(iv) People may purchase clothes by paying money equal to the value of the commodity purchased, e.g., 100 for one metre of cloth.

3. How do banks mediate between those who have surplus money and those who need money?

Ans. Banks mediate between those who have surplus money and those who need money in the following ways.

(i) People keep their surplus money in banks for safety and interest which is provided by banks to them.

(ii) Banks keep only a small proportion of their cash with themselves.

(iii) These days, banks keep about 15% of their deposits as cash to pay the depositors who might come to withdraw money from the bank on any given day.

(iv) Rest of the money they use to extend loans to those who need money.

(v) Banks charge higher interest on loans than what they offer on deposits.

(vi) The difference between the two is the main source of income of the banks.

4. Look at a 10 rupee note. What is written on top? Can you explain this statement?

Ans. The following words are written at the top of a 10 rupee note.

“Reserve Bank of India Guaranteed By The Central Government”

“I Promise To Pay The Bearer The Sum Of Ten Rupees.”

This implies the following.

(i) The notes are issued by the Reserve Bank of India.

(ii) The governor of the Reserve Bank promises to pay the bearer the sum of ten rupees.

(iii) The notes have been guaranteed by the Central Government and in case of failure of currency, people can claim from the Central Government.

(iv) The currency is legal and nobody can refuse to accept it.

5. Why do we need to expand formal sources of credit in India?

Ans. We need to expand formal sources of credit in India due to the following reasons.

(i) The moneylenders charge very high interest on loans from farmers.

(ii) The borrowers have to pay a major portion of their earnings to repay the interest and principal of the loan.

(iii) Sometimes, farmers have to sell their crop to money lenders at low prices.

(iv) Sometimes, farmers are caught in the debt trap.

(v) Formal sources of credit charge less interest and do not exploit the borrowers.

(vi) Cheap and affordable credit is crucial for the development of the country.

6. What is the basic idea behind the SHGs for the poor? Explain in your own words.

Ans. The basic idea behind the SHGs for the poor includes the following.

(i) To provide credit facilities at cheaper rates without much documentation process.

(ii) To organize rural poor, especially women, so that they may pool their savings and can borrow money without collateral.

7. What are the reasons why the banks might not be willing to lend to certain borrowers?

Ans. Banks loan require proper documentation and collateral. Absence of collateral is one of the major reasons which prevents the poor from getting bank loans. Generally, poor people fall into this category.