Watch Video
NCERT Solutions for Class 10 Economics Chapter 3 Money and Credit - FREE PDF Download
NCERT Solutions for Economics Chapter 3 Money and Credit Class 10 offers a clear guide to understanding money and credit. This chapter, part of the Class 10 Social Science syllabus, explains how money evolved from the barter system to modern currency, highlighting its importance in transactions. It covers various forms of money and the role of banks in providing credit.
Table of Content
Class 10 Economics NCERT Solutions students will learn about financial institutions, different types of loans, credit terms, and the need for security in lending. The chapter also looks at credit availability, distribution, and its impact on economic activities. These solutions provide detailed, step-by-step explanations to help students understand the material and prepare well for exams.
Glance on NCERT Solutions for Class 10 Economics Chapter 3 Money and Credit
This chapter explains how money evolved from the barter system to the various forms of currency used today.
It discusses different types of money, such as coins, paper money, and digital money, and the role of banks in providing loans and managing money is clearly described.
It covers the various types of loans available and their specific uses.
The terms of credit, including interest rates and repayment conditions, are thoroughly explained in this chapter.
This chapter examines how the availability of credit affects economic activities and growth.
It highlights the significance of financial institutions in supporting economic development.
The importance of understanding money and credit in everyday economic transactions is emphasised.
NCERT Solutions for Class 10 Social Science Economics Chapter 3 Money and Credit
Share
FAQs on NCERT Solutions for Class 10 Social Science Economics Chapter 3 Money and Credit
1. How should one explain the role of money in solving the problem of 'double coincidence of wants' as per the NCERT Class 10 syllabus?
To answer this correctly, first define the barter system, where goods are exchanged directly for other goods. The main problem here is the double coincidence of wants, which means both parties must agree to buy and sell each other's commodities. Money solves this by acting as an intermediate medium of exchange. For example, a farmer can sell crops for money and then use that money to buy shoes, without needing to find a shoemaker who wants to buy crops. This makes transactions simpler and more efficient.
2. What is the correct way to explain the statement 'Guaranteed by the Central Government' found on an Indian currency note?
As per the NCERT textbook, this statement signifies that the currency is authorised by the government of India. In India, the Reserve Bank of India (RBI) issues currency on behalf of the Central Government. The law legalises the use of the rupee as a medium of payment that cannot be refused in any transaction within the country. This authorisation gives the currency its value and universal acceptance.
3. How do banks mediate between people with surplus funds and those who need them? What is the step-by-step process?
Banks perform this crucial function through a simple, step-by-step process:
- Step 1: Accepting Deposits: Banks accept surplus money from people (depositors) and pay them a certain rate of interest on their deposits.
- Step 2: Maintaining Reserves: Banks keep a small portion of these deposits as cash for themselves (around 15% in India) to manage the daily withdrawal needs of depositors.
- Step 3: Extending Loans: The major portion of the deposits is used to give out loans to people who need money for various economic activities (borrowers).
- Step 4: Charging Interest: Banks charge a higher interest rate on loans than what they offer on deposits. The difference between these two rates is the bank's main source of income.
4. What are the 'terms of credit' and why are they a crucial part of any loan agreement in NCERT Solutions for Chapter 3?
The 'terms of credit' are the conditions that a borrower and lender agree upon before a loan is provided. Understanding these is essential for solving problems in this chapter. The key components include:
- Interest Rate: The extra amount the borrower must pay back, usually as a percentage of the loan.
- Collateral: An asset (like land, vehicle, or property) that the borrower owns and uses as a guarantee to the lender until the loan is repaid.
- Documentation: Required proofs of identity and income.
- Mode of Repayment: The duration and method of repaying the loan (e.g., monthly instalments).
5. How would you analyse a situation where credit, instead of helping a borrower, pushes them into a 'debt trap'?
A 'debt trap' occurs when credit leads to increased financial problems for the borrower. This often happens in high-risk situations. For example, a small farmer takes a loan for cultivation, but the crop fails due to a drought. The farmer is unable to repay the loan and is forced to sell a part of their land to clear the debt. In this case, the borrower is left worse off than before, demonstrating how credit can be unfavourable if the returns from the investment are lower than the cost of borrowing.
6. What is the correct method to differentiate between formal and informal sources of credit as per the CBSE 2025-26 guidelines?
To differentiate correctly, you should compare them on the following points:
- Lenders: Formal sources include banks and cooperatives. Informal sources include moneylenders, traders, employers, relatives, and friends.
- Supervision: Formal sources are supervised by the Reserve Bank of India (RBI), which sets rules and regulations. Informal sources are not supervised by any organisation.
- Interest Rates: Formal lenders generally offer lower and more reasonable interest rates. Informal lenders often charge much higher interest rates.
- Motive: The primary motive of formal sources is social welfare along with profit, while informal sources are often purely profit-driven and can be exploitative.
7. What is the basic idea behind Self-Help Groups (SHGs) and how do they help the rural poor get loans?
The fundamental idea of a Self-Help Group (SHG) is to organise rural poor, especially women, into small groups to pool their savings. These groups provide small loans to their members from their collective savings at a reasonable interest rate. A key feature is that they offer collateral-free loans, overcoming a major hurdle poor households face when approaching banks. Consistent repayment by the group makes them eligible for larger loans from formal banks.
8. If formal credit sources like banks are not expanded in rural areas, what are the likely negative consequences for small farmers?
Without access to formal credit, small farmers would be forced to rely on informal sources like moneylenders. This has severe negative consequences:
- High Debt Burden: They would face extremely high interest rates, making it difficult to escape poverty.
- Distress Sales: In case of crop failure, they might be forced to sell their land or other assets to repay the debt.
- Lack of Investment: Without cheap credit, they cannot invest in better seeds, fertilisers, or equipment, leading to low productivity and stagnant income.
- Perpetuation of Poverty: The high cost of informal credit traps them in a cycle of debt, preventing economic growth and development.
9. Beyond the lack of collateral, why else might a bank be unwilling to lend to certain borrowers?
While lack of collateral is a primary reason, banks also consider other factors. They may refuse loans to borrowers who:
- Have a poor repayment history: Individuals who have defaulted on previous loans are considered high-risk.
- Lack stable income proof: People with irregular or undocumented income may not be able to demonstrate their ability to repay the loan.
- Propose a high-risk business venture: If the bank assesses that a proposed business has a very low chance of success, it may decline the loan to protect its funds.
- Fail to provide complete documentation: Incomplete or improper documentation is another common reason for loan rejection in the formal sector.
10. How would you solve a case-study question asking whether a person should borrow from a bank or a moneylender?
To solve such a problem, you must analyse the loan offer based on the terms of credit. A person like Manav from the NCERT exercise should compare the two sources on the following grounds:
- Interest Rate: The bank will likely offer a much lower interest rate than the moneylender.
- Collateral Requirement: The bank will require proper documentation and collateral, which the moneylender might not, but the moneylender's terms could be more exploitative.
- Repayment Terms: The bank offers a structured and transparent repayment schedule, whereas the moneylender's terms might be flexible but often unfair.
- Overall Cost: Conclude that borrowing from the bank is more beneficial and less risky in the long run, despite the initial procedural requirements.
11. Why is collateral both a necessary and a problematic component of the formal lending system in India?
This is a critical thinking question. Collateral is:
- Necessary because it serves as a security or guarantee for the lender. If the borrower fails to repay, the lender can recover the money by selling the asset. This reduces the risk for the bank.
- Problematic because a vast majority of poor households in India do not own assets like land or property to offer as collateral. This systemic requirement excludes a large section of the population from accessing cheaper, formal sources of credit, forcing them towards exploitative informal lenders.
12. How does cheap and affordable credit contribute to a country's development?
Cheap and affordable credit is crucial for a country's development as it fuels economic activity. When loans are available at low interest rates, it allows:
- Farmers to invest in modern farming techniques, increasing crop yield and income.
- Small entrepreneurs to set up new businesses or expand existing ones, creating jobs.
- Students to pursue higher education, leading to a more skilled workforce.
- Individuals to purchase homes and vehicles, boosting demand in key industries.
In essence, widespread access to affordable credit drives production, consumption, and investment, leading to overall national growth.
