PRACTICE PAPER 18 (2024-25)

ECONOMICS - Chapter 03 Money and Credit

(ANSWERS)
SUBJECT: SOCIAL SCIENCE MAX. MARKS : 40
CLASS : X DURATION : 1½ hrs
General Instructions:
(i). All questions are compulsory.
(ii). This question paper contains 18 questions divided into five Sections A, B, C, D and E.
(iii). Section A comprises of 8 MCQs of 1 mark each. Section B comprises of 3 questions of 2 marks
each. Section C comprises of 4 questions of 3 marks each. Section D comprises of 2 questions of
5 marks each and Section E comprises of 1 Case Study Based Questions of 4 marks each.
(iv). There is no overall choice.
(v). Use of Calculators is not permitted

SECTION – A
Questions 1 to 8 carry 1 mark each.
1. Study the picture given below and answer the question that follows:

Currency in the era of kings were made from:

(a) Gold, Silver and Copper (b) Ivory and Bones
(c) Grains and Water (d) Rice and Water
Ans. (a) Gold, Silver and Copper

2. Observe the given pictures and answer the following question.

Which of the two men is more likely to face difficulty in borrowing money from a formal source
of credit while living in Firozabad?
(a) Man in Picture (A) (b) Man in Picture (B) (c) Both will easily be given credit
(d) Enough information has not been provided to ascertain which of the two will be given credit
easily.
Ans. (b) Man in Picture (B)

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 The man in Picture B is less likely to receive a loan from a formal source of credit because he
appears to be employed in an unorganised sector without any proper documentation and assets to
be submitted as a collateral.
While the man in the picture A seems to be an engineer or an IT employee who might have
enough information to apply for a loan with proper documentation.

3. Read the following passage and answer the question that follows:
Rita has taken a loan of ₹ 7 lakhs from the bank to purchase a car. The annual interest rate on the
loan is 14.5 per cent and the loan is to be repaid in 3 years in monthly instalments. The bank
retained the papers of the new car as collateral, which will be returned to Rita only when she
repays the entire loan with interest.
Analyse the loan information given above, and point out which one of the following is the
correct option that describes the above statements accurately.
(a) Mode of re-payment
(b) Terms of credit
(c) Interest on loan
(d) Deposit criteria
Ans. (b) Terms of credit

4. Find the incorrect option:

(a) Demand deposits share the essential features of money.
(b) With demand deposit payments can be made without cash.
(c) Demand deposits are a safe way of money transformation.
(d) Demand deposit facility is like cheque.
Ans. (d) Demand deposit facility is like cheque.
It can directly settle transactions without the use of cash or currency.

5. Which of the following refers to investment?

(a) The money spent on religious ceremonies.
(b) The money spent on social customs.
(c) The money spent to buy assets such as land.
(d) The money spent on household goods.
Ans. (c) The money spent to buy assets such as land.

6. Rehman is a poor agricultural labour and needs a loan for cultivation on his small piece of land.
Which of the following would definitely offer him a fair interest rate and flexible terms of credit?
(a) Village moneylender
(b) Cooperative society
(c) Commercial bank
(d) Rich landowner
Ans. (b) Cooperative society
They have been established to offer credit to the farmers and small entrepreneurs with lower
rates of interests and flexible terms of credit.

In the following questions 7 and 8, a statement of assertion (A) is followed by a statement of

Reason (R). Choose the correct answer out of the following choices.
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of
Assertion (A)
(c) Assertion (A) is true but Reason (R) is false
(d) Assertion (A) is false but Reason (R) is true
7. Assertion (A): If the borrower fails to repay the loan, the lender does not have the right to sell
the asset or collateral to obtain payment.

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 Reason (R): Collateral acts like a guarantee against the borrowed money.
Ans. Assertion (A) is false, but Reason (R) is true.
If the borrower fails to repay the loan, the lender has the right to sell the asset or collateral to
obtain payment.

8. Assertion (A): Banks have to submit information to the RBI on how much they are lending, to
whom, at what interest rate, etc.
Reason (R): This is done to ensure the rich get enough loans.
Ans. Assertion (A) is true, but Reason (R) is false.
Banks have to submit periodical reports and this is done to ensure appropriate amounts of loans
are given to the poor and vulnerable classes.

SECTION – B
Questions 9 to 11 carry 2 marks each.
9. (i) How is money beneficial in transactions?
(ii) What is barter system?
Ans. (i) It eliminates the need for double coincidence of wants. It acts as a medium of exchange.
(ii) When goods are directly exchanged for goods and there is no use of money, it is called barter
system.

10. (i) Why one cannot refuse a payment made in rupees in India?
(ii) Highlight the inherent problem in double coincidence of wants.
Ans. (i) It is accepted as a medium of exchange and it is authorised by the government of the
country.
(ii) The inherent problem in double coincidence of wants is that both parties have to agree to sell
and buy each others commodities.
OR
(i) Why is money called a medium of exchange?
(ii) Which metals were used for making coins in India in later stages?
Ans. (i) The money is called as a medium of exchange because it acts as an intermediate in the
exchange process.
(ii) Gold, Copper, Silver coins were used in later stages for making coins in India.

11. (i) Prove with an argument that there is a great need to expand formal sources of credit in rural
India.
(ii) How does money eliminate the need for double coincidence of wants? [CBSE (F) 2016]
Ans. (i) To expand formal sources of credit in rural India, dependence on informal sources of
credit has to be reduced.
(ii) If you have money in your pocket, you can purchase any thing at any time as you wish.
OR
(i) What do you mean by the term ‘collateral’?
(ii) Recognise the situation when both the parties in a barter economy have to agree to sell and
buy each other’s commodities. What is it called?
Ans. (i) It is an asset that the borrower owns and uses this guarantee to a lender until the loan is
repaid.
(ii) This is known as double coincidence of wants.

SECTION – C
Questions 12 to 15 carry 3 marks each.
12. Describe the bad effects of informal sources of credit on borrowers.
Ans. Bad effects of informal sources of credit on borrowers:
(i) Higher interest rate.

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 (ii) Higher cost of borrowing means a larger part of the earnings of the borrowers is used to
repay the loan.
(iii) In certain cases, the high interest rate for borrowing can mean that the amount to be repaid is
greater than the income of the borrower.
(iv) This could lead to increasing debt and debt trap. (Any three points)
OR
Why do banks and co-operative societies need to lend more ? Explain.
Ans. Banks and co-operative societies need to lend more:
(i) This would lead to higher incomes.
(ii) People could borrow cheaply for a variety of needs,
(iii) They could grow crops and set up small-scale industries, etc.
(iv) Cheap and affordable credit is crucial for the country’s development.
(v) To save and reduce the dependence on informal sources of credit.
(vi) It is important that the formal credit is distributed more equally so that the poor can benefit
from the cheaper loans.

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

Ans. There is a need to expand formal sources of credit in India:
(i) To save people from the exploitation of informal sector.
(ii) Formal institutions charge a low interest on loans.
(iii) To save from debt trap.
(iv) It provides cheap and affordable credit.
(v) RBI also supervises the formal sector credit through various rules and regulations which
ensures that banks give loans to small cultivators, small borrowers, etc. and not just to profit
making business and traders.

14. Why is modern currency accepted as a medium of exchange without any use of its own? Find out
the reason.
Ans. Modern currency is accepted as a medium of exchange without any use of its own
(i) Modern currency is authorised by the government of a country.
(ii) In India, Reserve Bank of India issues all currency notes on behalf of the central government.
(iii) No other individual or organisation is allowed to issue currency.
(iv) The law legalises the use of rupee as a medium of payment that cannot be refused in settling
transactions in India.
(v) No individual in India can legally refuse a payment made in rupees. (Any three)

15. ‘‘Credit can play a negative role.’’ Justify the statement with arguments.
Ans. Negative role of Credit:
(i) During natural calamities credit repayment is painful to the farmer.
(ii) Small Producers compelled to sell a parts of land for repayment.
(iii) Credit pushes the borrower into deep debt.
(iv) The borrower reaches worse than before.
OR
Why is it necessary to increase the number of banks mainly in rural areas? Explain.
Ans. It is necessary to increase a large banks mainly in rural areas because:
(i) The cost of informal loans is much higher and often leads to a debt trap. Also, people who
might wish to start a new enterprise by borrowing may not do so because of the high cost of
borrowing in such a case.
(ii) Most loans from informal lenders carry a very high interest rate and make less increase in the
income of the borrowers. Thus, it is necessary that banks and cooperatives should increase their
lending particularly in the rural areas, so that the dependence of the poor on informal sources of
credit reduces.
(iii) It is important that the formal credit sources like banks are distributed more equally in rural
and urban areas so that the poor can benefit from the cheaper loans.

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 SECTION – D
Questions 16 to 17 carry 5 marks.
16. How can the formal sector loans be made beneficial for poor farmers and workers? Suggest any
five measures.
Ans. Formal sector loans can be made beneficial for poor farmers and workers in the following
ways :
(i) Create awareness to farmers about formal sector loans.
(ii) Process of providing loans should be made easier. It should be simple, fast and timely.
(iii) More number of Nationalized Banks/Cooperative Banks should be opened in the rural
sector.
(iv) Banks and cooperatives should increase facility of providing loans so that dependence on
informal sources of credit reduces.
(v) The benefits of loans should be extended to poor farmers and small scale industries.
(vi) While formal sector loans need to expand, it is also necessary that everyone receives these
loans. (Any five)
OR
Why is cheap and affordable credit important for the country’s development? Explain any five
reasons.
Ans. Importance of cheap and affordable credit for the country’s development –
(i) Cheap and affordable credit would lead to higher income.
(ii) Many people could borrow for a variety of needs
(iii) It encourages people to invest in agriculture, do business and set up small scale industries
etc.
(iv) It enables more investment which will lead to the acceleration of economic activities.
(v) Affordable credit would also end the cycle of the debt trap.

17. “Credit sometimes pushes the borrower into a situation from which recovery is very painful.”
Support the statement with examples.
Ans. It is true that credit sometimes pushes the borrower into a situation from which recovery is
very painful. It happens in cases like:
(i) In case of rural area if crop fails due to natural factors, it will be difficult to repay.
(ii) In case of failure of a business it will be difficult to repay interest.
(iii) In situations with high risks, credit might create further problems for the borrower.
(iv) In the situation when borrower is unable to pay previous loan and he takes new loan.
(v) Loans taken by poor people from informal lenders sometimes, lead them to debt trap because
of high interest rate.
OR
Describe the significance of the Reserve Bank of India.
Ans. The significance of the Reserve Bank of India in the Indian economy:
(i) RBI issues currency notes on behalf of the central government.
(ii) It supervises the functioning of formal sources of loans.
(iii) The RBI monitors that the banks actually maintain the cash balance.
(iv) 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.
(v) Periodically, banks have to submit information to RBI.

SECTION – E (Case Study Based Questions)

Questions 18 carry 4 marks each.
18. In recent years, people have tried out some newer ways of providing loans to the poor. The idea
is to organise 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 ₹ 25 to ₹ 100 or

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 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 is meant to create self employment Opportunities for the members.

(a) Describe any two advantages of the ‘Groups’ mentioned in the source for the poor. (2)
(b) How do these groups create various employment opportunities for their members? (1)
(c) Classify these groups into formal or informal sources of credit. (1)
Ans. (a) Two advantages of a Self-Help Group for the poor are as follows:
(i) They raise awareness among the poor about saving and lending. They educate them and train
them into making wiser financial decisions.
(ii) They reduce their dependence upon informal sources of credit.
(b) Self-Help Groups create various opportunities of job and employment for their members by
lending them small amounts of money to continue their agricultural or farming processes. They
help their members make better financial decisions and make them aware of their capabilities.
They arrange for them, an initial capital to start their small industries through affordable loans.
(c) Self-Help Groups are formal sources of credit.

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