NCERT Solutions Class 10 Social Science Economics Chapter 3 Money and Credit

NCERT Solutions Class 10 Economics Chapter 3 – Money and Credit help students understand how money works in our daily life and its role in the economy. The NCERT Solutions for Class 10 Social Science Chapter explains the history and use of money, how people get loans, and the differences between formal and informal credit systems. It also highlights how credit can help or harm people, depending on how it's used.

These NCERT Solutions are created to match the Class 10 NCERT textbook and offer clear, easy-to-understand answers. They are useful for revising key concepts, completing homework, and preparing for exams without confusion.

1.0Download NCERT Solutions Class 10 Social Science Chapter 3 Money and Credit : Free PDF

Download NCERT Solutions for Class 10 Social Science Chapter 3 Money and Credit in our free PDF, designed by experts to make learning simple and exam preparation easier.

2.0Key Concepts Class 10 Social Science Chapter 3 Money and Credit : Brief Explanation

Chapter 3 – Money and Credit introduces students to the functioning of money and credit systems in the Indian economy. It explains how money acts as a medium of exchange and how credit can be both beneficial and harmful, depending on the situation.

• Money as a Medium of Exchange:
  Money replaced the barter system and became a widely accepted medium of exchange. It simplifies transactions and helps in the smooth functioning of the economy.
• Modern Forms of Money:
  Modern money includes currency notes and coins issued by the Reserve Bank of India (RBI). These are accepted as a medium of exchange because they are authorized by the government.
• Credit (Loan):
  Credit is an agreement in which the lender provides money or goods to the borrower with the promise of repayment. Credit plays a crucial role in economic development but can also lead to debt traps if repayment fails.
• Types of Credit Outcomes:
  Credit can lead to increased income and business growth (positive outcome), or it can cause heavy debt and financial stress (negative outcome).
• Formal and Informal Credit Sources:
• • Formal sector: Banks and cooperative societies – regulated by the RBI.
  • Informal sector: Moneylenders, landlords, and relatives – often unregulated and may charge high interest rates.
• Need for Formal Credit:
  A greater share of formal credit helps reduce dependence on informal sources and ensures fair practices and lower interest rates.
• Self Help Groups (SHGs):
  SHGs are small groups, mostly of women, who pool their savings to give loans to members. They promote self-reliance and access to credit for those who lack collateral.

3.0NCERT Class 10 Social Science Chapter 3: Detailed Solutions

1. In situations with high risks, credit might create further problems for the borrower. Explain.
   Ans. This is also known as a debt-trap. Taking credit involves an interest rate on the loan and if this is not paid back, then the borrower is forced to give up his collateral or asset used as the guarantee, to the lender. If a farmer takes a loan for crop production and the crop fails, loan payment becomes impossible. To repay the loan the farmer may sell a part of his land making the situation worse than before. Thus, in situations with high risks, if the risks affect a borrower badly, then he ends up losing more than he would have without the loan.
2. How does money solve the problem of double coincidence of wants? Explain with an example of your own.
   Ans. In a barter system where goods are directly exchanged without the use of money, double coincidence of wants is an essential feature. By serving as a medium of exchange, money remove the need for double coincidence of wants and the difficulties associated with the barter system. For example, it is no longer necessary for the farmer to look for a book publisher who will buy his cereals at the same time sell him books. All he has to do is find a buyer for his cereals. If he has exchanged his cereals for money, he can purchase any goods or service which he needs. This is because money acts as a medium of exchange.
3. How do banks mediate between those who have surplus money and those who need money? Ans. Banks keep small portion deposits as cash (15%) for themselves (to pay the depositors on demand). They use the major portion of the deposits to extend loans to those who need money. In this way banks mediate between those who have surplus money and those who need money.
4. Look at a 10 rupee note. What is written on top? Can you explain this statement? Ans. "Reserve Bank of India" and "Guaranteed by the Government" are written on top. In India, Reserve Bank of India issues currency notes on behalf of the central government. The statement means that the currency is authorized or guaranteed by the Central Government. Indian law legalizes the use of rupee as a medium of payment that cannot be refused in setting transaction in India.
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: To reduce dependence on informal sources of credit because the latter charge high interest rates and do not benefit the borrower much. Cheap and affordable credit is essential for country's development. Banks and co-operatives should increase their lending particularly in rural areas.
6. What is the basic idea behind the SHGs for the poor? Explain in your own words.
   Ans. The basic idea behind the SHGs is to provide a financial resource for the poor through organizing the rural poor especially women, into small Self-Help Groups. They also provide timely loans at a responsible interest rate without collateral. Thus, the main objectives of the SHGs are: (a) To organize rural poor especially women into small Self-Help Groups. (b) To collect savings of their members. (c) To provide loans without collateral. (d) To provide timely loans for a variety of purposes. (e) To provide loans at responsible rate of interest and easy terms. (f) Provide platform to discuss and act on a variety of social issues such as education, health, nutrition, domestic violence etc.
7. What are the reasons why the banks might not be willing to lend to certain borrowers?
   Ans. The banks might not be willing to lend certain borrowers due to the following reasons:
   Banks require proper documents and collateral as security against loans. Some persons fail to meet these requirements. The borrowers who have not repaid previous loans, the banks might not be willing to lend them further. The banks might not be willing to lend those entrepreneurs who are going to invest in the business with high risks. One of the principal objectives of a bank is to earn more profits after meeting a number of expenses. For this purpose, it has to adopt judicious loan and investment policies which ensure fair and stable return on the funds.
8. In what ways does the Reserve Bank of India supervise the functions of Banks? Why is this necessary? Ans. The Reserve Bank of India supervises the functions of banks in a number of ways : The commercial banks are required to hold part of their cash reserves with RBI. RBI ensures that the banks maintain a minimum cash balance out of the deposits they receive. RBI observes that the banks give loans not just to profit making businesses and traders but also to small cultivators, small scale industries, small borrowers etc. The commercial banks have to submit information to the RBI on how much they are lending, to whom, at what interest rate etc. This is necessary to ensure equality in the economy of the country and protect especially small depositors, farmers, small scale industries, small borrowers etc. In this process RBI also acts as the lender of the last resort to the banks.
9. Analyse the role of credit for development. Ans. Cheap and affordable credit plays a crucial role for the country's development. There is a huge demand for loans for various economic activities. The credit helps people to meet the ongoing expenses of production and thereby develop their business. Many people could then borrow for a variety of different needs. They could grow crops, do business, set up industries etc. In this way credit plays a vital role in the development of a country.
10. Manav needs a loan to set up a small business. On what basis will Manav decide whether to borrow from the bank or the moneylender? Discuss. Ans. Manav will decide whether to borrow from the bank or the money lender on the basis of the following terms of credit: Rate of interest, Requirements availability of collateral, documentation required by banker and mode of repayment. Depending on these factors and of course, easier terms of repayment. Manav has to decide whether he has to borrow from the bank or the moneylender.
11. In India, about 80 percent of farmers are small farmers, who need credit for cultivation. (a) Why might banks be unwilling to lend to small farmers? (b) What are the other sources from which the small farmers can borrow? (c) Explain with an example how the terms of credit can be unfavourable for the small farmer. (d) Suggest some ways by which small farmers can get cheap credit.
    Ans. (a) Bank loans require proper documents and collateral as security against loans. But most of the times the small farmers lack in providing such documents and collateral. Besides, at times they even fail to repay the loan in time because of the uncertainty of the crop. So, banks might be unwilling to lend to small farmers. (b) Apart from bank, the small farmers can borrow from local money lenders, agricultural traders, big landlords, cooperatives, SHGs etc. (c) The terms of credit can be unfavourable for the small farmer which can be explained by the following Ramu, a small farmer borrows from a local moneylender at a high rate of interest i.e., 3 per cent to grow rice. But the crop is hit by drought, and it fails. As a result, Ramu has to sell a part of land to repay the loan. Now his condition becomes worse than before. (d) The small farmers can get cheap credit from the different sources like - Banks, Agricultural Cooperatives, and SHGs.
12. Fill in the blanks: (i) Majority of the credit needs of the ________ households are met from informal sources. (ii) ________ costs of borrowing increase the debt-burden. (iii) ________ issues currency notes on behalf of the Central Government. (iv)Banks charge a higher interest rate on loans than what they offer on ___________. (v) _________ is an asset that the borrower owns and uses as a guarantee until the loan is repaid to the lender. Ans. (i) poor (ii) High (iii)Reserve Bank of India (iv)deposits (v) Collateral
13. Choose the most appropriate answer. (i) In a SHG most of the decisions regarding savings and loan activities are taken by (a) Bank (b) Members (c) Non-government organisation
    Ans. (b) Members
    (ii) Formal sources of credit do not include (a) Banks. (b) Cooperatives. (c) Employers.
    Ans. (c) Employers.

4.0Key Features and Benefits of Class 10 Social Science Chapter 3 Money and Credit 

• Concept of Money: This chapter explains the evolution of money, from the barter system to modern forms of currency like paper notes and digital money.
• Functions of Money: Students learn how money acts as a medium of exchange, making trade easier and more efficient in today’s world.
• Credit and Its Impact: It introduces the concept of credit, highlighting how loans can be both helpful and risky depending on the situation.
• Types of Loans: The chapter explains formal (banks and cooperatives) and informal (moneylenders, relatives) sources of credit, along with their advantages and disadvantages.
• Role of Banks: Students understand how banks function, how people deposit and borrow money, and the importance of saving and interest.
• Case Studies for Clarity: Real-life examples and case studies help students relate to the topic and understand how money and credit affect daily life.
• Exam-Oriented Learning: With important definitions, comparisons, and flowcharts, this chapter is easy to revise and useful for scoring well in exams.