CBSE Class 10 Social Science Money and Credit Important Questions Set B

Objective Type Questions

Question. Which of the following is a reason for using money to buy goods and services?
(a) Money can be easily exchanged for any good or service a person wants.
(b) Money is more valuable than any good or service a person wants.
(c) Money cannot be put to any other use apart from transaction.
(d) Money is less valuable than any good or service a person wants so people easily give money for the goods and services.
Answer: (a)

Question. Which of the following statement best describes the double coincidence of wants?
(a) A person must have money if he or she wishes to buy a good or service.
(b) A person should demand a great amount of a good or service so that another person is willing to produce it.
(c) Two individuals must agree to sell and buy each other’s commodities to conduct the trade.
(d) Two individuals must be able to produce all goods and services for the entire society.
Answer: (c)

Question. A system where goods are exchanged for other good is called ______.
(a) barter system
(b) flexible exchange system
(c) fluctuating system
(d) rational trade system
Answer: (a)

Question. Mohan produces ice creams and wants to sell it to people. He also requires sugar to make ice cream, so he wishes to buy sugar. Now, Mohan is unable to find a person who will exchange sugar for ice cream. Which of the following terms explain the problem that Mohan is facing?
(a) Lack of trade expertise
(b) Double coincidence of wants
(c) Irrational consumer behavior
(d) Future expectations
Answer: (b)

Question. Because money acts as an intermediary in a transaction, it is referred to as _____.
(a) Unit of account
(b) Standard of deferred payment
(c) Medium of exchange
(d) Store of value
Answer: (c)

Question. Which among the following issues currency notes on behalf of the Central Government ?
(a) State Bank of India
(b) Reserve Bank of India
(c) Commercial Bank of India
(d) Union Bank of India
Answer: (b)

Question. Which of the following statement best describes a demand deposit?
(a) The cash held by people which can be used as and when they require is called demand deposit.
(b) The cash deposited in a bank which can be withdrawn on demand is called demand deposit.
(c) The order to a bank to pay a certain sum from the drawer’s account is called demand deposit.
(d) The currency approved by international bodies to carry out trade practices is called demand deposit.
Answer: (b)

Question. A paper that instructs a bank to pay a specific amount from a person’s account to another person in whose name the paper is issued is called a ______.
(a) demand deposit
(b) time deposit
(c) bond
(d) cheque
Answer: (d)

Question. Which of the following statement is true of banks?
(a) Banks mediate between those who want to sell one commodity in exchange of other commodity
(b) Banks use a major proportion of deposits to invest in mutual funds.
(c) Banks charge a lower interest rates on loan than the interest rate they offer on deposits.
(d) Banks use the deposits to fulfil loan requirements of the people.
Answer: (d)

Question. Which of the following statement best describes a debt trap?
(a) When a person takes credit but is unable to repay it and has to take more credit either to repay the previous credit, the person is in a debt trap.
(b) When a person takes credit for production process, earns good profit, returns the credit and again takes credit in the next production cycle, the person is in a debt trap.
(c) When a person takes loan from unorganized sector, the person is in a debt trap.
(d) When a person takes loan from a bank, the person is in a debt trap as the banks charge a very high interest rate on loans.
Answer: (a)

Question. In the barter system, when the demand of two persons for each other’s commodity is raised at the same time, it is called double coincidence of wants. (True/False)
Answer: True

Question. Money eliminates the need for double coincidence of wants. (True/False)
Answer: True

Question. Paper notes are accepted as a medium of exchange because the currency is authorized by the government of the country. (True/False)
Answer: True

Question. Since money acts as an intermediate in the exchange process, it is called a medium of exchange.(True/False)
Answer: True

Question. Transactions are made in money because it eliminates the inconvenience of barter system of exchange. (True/False)
Answer: True

Question. Match the following :
Column A | Column B
1. Collateral | (A) Issuing currency notes
2. Terms of Credit | (B) Banks and cooperative societies
3. Formal sector | (C) Borrower’s asset that he/she produces in bank for loan
4. Informal sector | (D) Rate of interest, collateral and mode of repayment
5. RBI | (E) Money lenders
Answer: 1. (C), 2. (D), 3. (B), 4. (E), 5. (A)

Question. Ethnic tension between Serbs and Albanians resulted in disintegration of which of the following countries?
(A) Sri Lanka
(B) Belgium
(C) Yugoslavia
(D) Bolivia
Answer: (C)

Question. The main functions of money in an economic system facilitate.
Answer: The exchange of goods and Services

Question. Complete the following : Double coincidence of wants means both parties i.e., the buyer and the seller have to agree ________.
Answer: to sell and buy each other’s commodities.

Question. Currency is accepted as a medium of exchange because the currency is authorised by ________ . OR ________ is an asset that the borrower owns and uses this as a guarantee to a lender until the loan is repaid.
Answer: Government. OR Collateral.

Question. Formal Loans : Bank, Informal Loans: ________ .
Answer: Money lenders.

Question. Arrange the Sequence
(i) Bank money
(ii) Commodity money
(iii) Metallic money
(iv) Paper money
(A) iv-i-ii-iii
(B) ii-iii-iv-i
(C) iii-iv-ii-i
(D) iii-iv-i-ii
Answer: (B)

Question. Complete the following table : (Formal, Informal sector)
Type of Credit | Example
(i) _______ | Money lender, Relatives
(ii) _______ | Bank
Answer: (i) Informal sector (ii) Formal sector

Question. Correct the following statement and rewrite : Collateral is an assets and uses this as a guarantee until the loan is repaid and use this, that the borrower owns.
Answer: Collateral is an assets that the borrower owns and uses this as a guarantee to a lender until the loan is repaid.

Very Short Answer Type Questions

Question. What kind of economy is suitable for barter system?
Answer: Backward economy.

Question. Explain the main function of money.
Answer: The medium of exchange.

Question. Explain the main difficulty of Barter System.
Answer: The double coincidence of wants.

Question. What is money ?
Answer: Money is anything which is generally acceptable as a medium of exchange.

Question. Highlight the inherent problem in double coincidence of wants.
Answer: The inherent problem in double coincidence of wants is that both parties must agree to sell and buy each other’s commodities.

Question. Recognize 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?
Answer: Double coincidence of wants.

Question. How does money remove the difficulty of the double coincidence of wants ?
Answer: Money has removed the problem of double coincidence of wants by breaking a single exchange transaction for specific goods into two transactions of buying and selling by involving a medium of general acceptability, i.e., money. Everyone involved in a transaction may buy the good of his requirement from anybody who has got that thing. Now they don’t have to look for a person who desires to sell exactly what the other wishes to buy.

Question. Who issues currency in India?
Answer: The Reserve Bank of India.

Question. What are the modern forms of money — currency and deposits associated with ?
Answer: Modern banking system.

Question. What is demand deposit ?
Answer: Demand deposits are the deposits with the bank which are withdrawable by cheque. Since such deposits can be withdrawn by cheque on demand, that is why they are called demand deposits.

Question. Define Cheque.
Answer: A cheque is a credit instrument through which the depositor instructs the bank to pay a specific amount from the depositor’s account to the person in whose name the cheque has been issued.

Question. Why one cannot refuse a payment made in rupees in India ?
Answer: One cannot refuse a payment made in rupees in India because rupees is officially accepted as medium of exchange. The currency is authorised by the government of the country.

Question. What are the functions of a bank ?
Answer: To accept deposit and providing loan.

Question. What are the two benefits of banks ?
Answer: (i) Banks accept deposits, i.e., surplus funds from the depositors. (ii) Banks play an important role in economic development.

Question. What is credit ?
Answer: Credit or loan refers to an agreement between a lender and a borrower in which the lender provides the borrower money, goods or services to be paid back by the borrower in the future.

Question. What is the main purpose of credit in rural areas ?
Answer: In rural areas, the main demand for credit is for crop production. Crop production involves expenses on seeds, fertilisers, pesticides, water, electricity, repair of equipment, etc.

Question. What is debt trap ?
Answer: A debt trap is a situation in which a debtor has to take more debts to pay back the previously taken loans and their interest liability.

Question. What things can be used as collateral ?
Answer: Land, building, jwellery, vehicle, livestocks, deposits with banks etc. can be used as collateral.

Question. Who supervises the functioning of formal sources of loans?
Answer: The Reserve Bank of India.

Question. What are the purposes a farmers’ cooperative provides loans for ?
Answer: Farmers’ Cooperative provides loans to its members for the purchase of agricultural equipment, cultivation and agricultural trade, fishery loans, construction of houses and a variety of other expenses.

Question. What are the two benefits of cooperatives ?
Answer: (i) Cooperatives help their members to acquire credit at reasonable terms. (ii) It save the members from the exploitation of informal sources of credit like moneylenders.

Question. What in your opinion is the way to break the debt trap ?
Answer: The debt trap can be broken with the help of credit facilities on softer terms from the formal sector like banks, cooperative societies or self help groups.

Question. What is the full form of SHG?
Answer: Self Help Group.

Question. Give any two examples of informal sector of credit.
Answer: (a) Credit from ‘moneylenders’. (b) Credit from ‘family members’.

Assertion and Reasoning Based Questions

Mark the option which is most suitable :
(a) If both assertion and reason are true and reason is the correct explanation of assertion.
(b) If both assertion and reason are true but reason is not the correct explanation of assertion.
(c) If assertion is true but reason is false.
(d) If both assertion and reason are false.

Question. Assertion : The modern currency is used as a medium of exchange; however, it does not have a use of its own.
Reason : Modern currency is easy to carry
Answer: (b) The modern currency is used as a medium of exchange because it is accepted and authorised as a medium of exchange by a country’s government.

Question. Assertion : In India, no individual can refuse to accept a payment made in rupees.
Reason : Rupee is the legal tender in India.
Answer: (a) The law legalises the use of rupee as a medium of payment that cannot be refused in settling transactions in India.

Question. Assertion : The facility of demand deposits makes it possible to settle payments without the use of cash.
Reason : Demand deposits are paper orders which make it possible to transfer money from one person’s account to another person’s account.
Answer: (d) The facility of cheques against demand deposits makes it possible to directly settle payments without the use of cash. Since demand deposits are accepted widely as a means of payment, along with currency, they constitute money in the modern economy.

Question. Assertion : Banks keep only a small proportion of their deposits as cash with themselves.
Reason : Banks in India these days hold about 15 per cent of their deposits as cash.
Answer: (b) Banks keep only a small proportion of their deposits as cash with themselves because they use the major portion of the deposits to extend loans as there is a huge demand for loans for various economic activities.

Question. Assertion : Banks charge a higher interest rate on loans than what they offer on deposits.
Reason : The difference between what is charged from borrowers and what is paid to depositors is their main source of income.
Answer: (a) Banks in India hold about 15 per cent of their deposits as cash as the remaining deposits are used to provide loans. The interest charged on loans is higher than the interest paid on deposits and the difference between the two interest rates is the major source of income for banks.

Question. Assertion : Rohan took credit in the form of advance payment from a buyer and he delivered the goods to the buyer on time and also earned profit. The credit made Rohan better off in this situation.
Reason : Credit can never push a person into a debt trap.
Answer: (c) The credit made Rohan better off in this situation, however, Rohan would have been worse off if he had failed to deliver the goods on time or he had made a loss in the production process. The latter two situations may have caused Rohan to fall in a debt trap.

Question. Assertion : If credit would be useful or not depends on the risk involved in a situation.
Reason : The chance of benefitting from credit is highest in agriculture sector.
Answer: (c) Whether credit would be useful or not depends on the risks in the situation and whether there is some support, in case of loss.

Question. Assertion : Collateral is an asset that the borrower owns (such as land, building, vehicle, livestock, deposits with banks) and uses this as a guarantee to a lender until the loan is repaid.
Reason : Collateral is given as the lender can sell the collateral to recover the loan amount if the borrower fails to repay the loan.
Answer: (a) Property such as land titles, deposits with banks, livestock are some common examples of collateral used for borrowing. In case of failure of repayment of loan, the lender can sell the collateral to recover the loan amount.

Question. Assertion : The terms of deposit are same for all credit arrangements.
Reason : Credit arrangements are very complex process so to remove the complexities same terms of deposits are used.
Answer: (d) The terms of credit vary substantially from one credit arrangement to another. They may vary depending on the nature of the lender and the borrower.

Question. Assertion : The Reserve Bank of India supervises the functioning of formal sources of loans.
Reason : 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.
Answer: (b) The RBI oversees the functioning of commercial banks. The reason statement substantiates the assertion but it is not the explanation for the assertion.