NCERT Solutions Class 10 Social Science Understanding Economic Development Chapter 3

NCERT Solutions For Class 10 Economics Chapter 3

The study of the creation, consumption, and transfer of wealth is called economics. It explores how people, corporations, governments, and nations make resource allocation decisions, especially for scarce resources.

Money and Credit is the 3rd Chapter of Class 10th Economics. This chapter covers modern forms of Money and their connection to the banking system. The second half of the chapter teaches students about Credit and how it affects borrowers in various situations.

NCERT solutions provide detailed and authentic answers to the questions given in the NCERT text book. For example, Extramarks presents CBSE Class 10 Economics Chapter 3 Solutions. These help students understand the chapter’s concepts as the Extramarks NCERT Solutions Class 10 Economics Chapter 3 is made systematically, using an elementary language. Money and Credit Class 10 NCERT Solutions are prepared by Economics experts having years of experience. 

Apart from Class 10 Economics Chapter 3 Solutions by Extramarks, students can access various other comprehensive study materials on the Extramarks’ website. For example, study material such as NCERT books, CBSE revision notes, CBSE sample papers, and CBSE past years’ question papers, all curated by experts after a lot of research, is available for all Classes.

Key Topics Covered in NCERT Solutions for Class 10 Economics Chapter 3

The key topics covered for NCERT Solutions for Class 10 Economics Chapter 3– Money and Credit, are listed below: 

Money as a Medium of Exchange
The Modern form of Money
Loan activities of Bank
Two different Credit situations
Terms of Credit
Formal Sector Credit in India
Self Help groups for the Poor

Let us dig into Extramarks’ detailed information on each subtopic in NCERT Solutions for Class 10 Economics Chapter 3- Money and Credit.

Money as a Medium of Exchange

Extramarks NCERT Solutions for Class 10 Economics Chapter 3 defines Money as a medium of exchange as it serves as an intermediary in the exchange process. Therefore, a person with Money may readily exchange it for whatever item or service they desire.

Double Coincidence of Wants: It happened when both sides in a deal agreed to sell and buy each other’s goods at the same time. The barter system relies on a double coincidence of wants.

The Modern form of Money

In the early years, Indians used wheat and livestock as currency. subsequent to that, till the twentieth century, the usage of metallic coins, such as gold, silver, and copper was prevalent. Among the contemporary forms of currency — paper notes and coins are the most famous.  Currency and deposits, the modern forms of Money – are intimately related to the current banking system’s operations.

Currency

The Reserve Bank of India is the only organization that issues currency notes on behalf of the Indian government. No individual or any organisation is allowed to print money. The rupee is widely accepted as a means of currency in India.

Deposits in the Banks

People may also save money in the form of bank deposits. People deposit their excess funds in the Bank by creating a personal account. Banks not only accept but also pay interest on deposits.

Demand deposits are deposits in bank accounts that can be withdrawn. Payments are made with cheques rather than cash.

Cheques

Cheques are a piece of paper that tells the Bank to transfer a specific amount from one person’s account to the one indicated on the check.

The points mentioned above give a brief about India’s modern forms of currency. Get more details on Extramarks NCERT Solutions for Class 10 Economics Chapter 3.

Loan activities of Bank

Extramarks NCERT Solutions for Class 10 Economics Chapter 3 explains about Loan activities of a Bank as follows:

  • Banks only keep a tiny percentage of their deposits in cash. For example, in India, banks today hold around 15% of their deposits in cash. This is kept as a reserve to pay depositors who may come to the Bank to withdraw money on any given day.
  • Banks use most deposits to extend loans. Loans are in great demand for a variety of economic activities. As a result, banks impose a higher interest rate on loans than on deposits.
  • The difference between what banks charge borrowers and what they pay depositors is a primary source of revenue for banks.

Two different Credit situations

A credit (loan) agreement is when the lender gives the borrower money, goods, or services in exchange for the promise of future payment.

Credit issues can be divided into two categories as per Extramarks NCERT Solutions for Class 10 Economics Chapter 3:

  • In scenario one, a person borrows Money for production purposes to return the loan after job completion at the end of the year. By the end of the year, they will have generated a significant profit from manufacturing activities and will be able to return the loan. As a result, the individual is in a stronger position than before.
  • In scenario two, a person borrows Money for production purposes with the promise of returning the debt when the production task is completed at the end of the year. By the year end, they will have slipped into debt. As a result, the person’s circumstance has worsened.

Terms of Credit

In addition to the principal payments, every loan agreement specifies an interest rate that must be paid to the lender. In exchange for loans, lenders also want collateral (security). Mentioned below are specific terms of Credit as stated in Extramarks NCERT Solutions for Class 10 Economics Chapter 3:

  • An asset that the borrower owns that is pledged against a debt is called a Collateral. This collateral is pledged to a lender until the loan is repaid, such as land, a building, a car, livestock, or bank deposit. The lender could sell the asset or collateral to recover payment if the borrower fails to repay the loan.
  • The interest rate, collateral, paperwork requirements, and the repayment method are all part of the credit terms. It changes based on the personality of the lender and borrower.

Formal Sector Credit in India

For the prosperity of a nation, low-cost, readily available Credit is necessary. Therefore, the various types of loans may be Classified, as per Extramarks NCERT Solutions for Class 10 Economics Chapter 3, as follows:

  • Formal Sector Loans: Bank and cooperative loans are examples of traditional sector loans. The Reserve Bank of India (RBI) oversees and regulates all official credit sources. Banks must declare to the RBI how much Money they are lending, to whom they are lending it, and at what interest rate.
  • Informal Sector Loans: Moneylenders, dealers, employers, relatives, and friends, among others, provide loans in the informal sector. There is no regulatory agency that regulates informal lenders’ lending activity. Therefore, nobody can stop them from getting their Money in unlawful ways.

Formal and Informal Credit

Extramarks NCERT Solutions for Class 10 Economics Chapter 3 describes the Formal and Informal Credit in the following way:

  • Formal Credit: The RBI regulates the functioning of traditional lending providers such as banks and cooperatives. To guarantee that the Bank maintains a minimum cash balance and that loans are supplied to small producers, small scale companies, small borrowers, and so on, rather than only profit-making firms and dealers. The RBI requires banks to disclose their actions regularly.
  • Informal Credit: A few examples are money lenders, traders, employers, family, and friends. No one oversees keeping track of their credit activities. They are free to charge any interest rate they wish. Considering these are informal credit options, there is no governing or legal body to monitor their unethical activities of recovering their money. 

Self Help groups for the Poor

Poor households that are not playing a major role in the formal economy continue to rely on informal sources of Credit.  These factors as presented by Extramarks NCERT Solutions for Class 10 Economics Chapter 3:

  • In rural India, banks are not everywhere.
  • Even if banks are present, obtaining a bank loan is substantially more difficult because adequate documentation and collateral are required.

Self-Help Groups were formed to address these issues. Self Help Groups are small organisations of poor people that encourage their members to save small amounts of money. A typical Self-Help Group includes 15-20 members who regularly meet and save from the same neighbourhood.

Advantages of Self-Help Groups

  • It assists borrowers in overcoming the absence of collateral issues.
  • People receive loans on schedule as well as a fair interest rate for several objectives.
  • SHGs are the rural poor’s organizational building blocks.
  • They assist rural women in becoming financially self-reliant.
  • The group’s frequent meetings give a forum for discussing and acting on various social concerns such as health, nutrition, domestic abuse, etc.

The above-mentioned advantages of Self-Help Groups as per Extramarks NCERT Solutions for Class 10 Economics Chapter 3. These solutions are prepared systematically.

NCERT Solutions for Class 10 Economics Chapter 3 Money and Credit NCERT Solutions 

Extramarks NCERT Solutions for Class 10 Economics Chapter 3 Money and Credit NCERT Solutions consists of explanations of essential concepts and other key topics covered in the Class 10 Economics subject. Students should read the chapter carefully multiple times to understand it thoroughly. 

Students may access NCERT Solutions for Class 10 Economics Chapter 3 and other Chapters by clicking here. 

In addition, students can also explore NCERT Solutions for other Classes below.

NCERT Class 10 Social Science Books Available for:
NCERT Solutions Class 10 Social Science – Understanding Economic Development
NCERT Solutions Class 10 Social Science – India and the Contemporary World
NCERT Solutions Class 10 Social Science – Democratic Politics
NCERT Solutions Class 10 Social Science – Contemporary India

NCERT Solutions for Class 10 Economics Chapter 3 provides detailed and authentic answers to the questions related to money and credit given in the NCERT text book.

Key Features of NCERT Solutions for Class 10 Economics Chapter 3

Studying NCERT Solutions is one of the best and easiest ways to excel in any subject. Therefore, Extramarks has developed NCERT Solutions for Class 10 Economics Chapter 3. These solutions prove to be a boon for students and are created by Extramarks for all students that need to excel. Some strong reasons why one must choose Extramarks are as elucidated below:

  • Students who go through Extramarks NCERT Solutions to understand all the chapter’s concepts find it easier to meet their intended understanding outcomes and get a good score. 
  • These solutions are prepared systematically in the most straightforward language possible.
  • Students not only understand the solutions completely, there is also a much higher recall value because of these solutions.

Q.1 In situation of high risk, credit might create further problems for the borrower. Explain.

Ans-

In situation of high risk, the problem of collateral and debt trap arises for the borrower. Collateral is the guarantee given by the borrower to the bank, against the amount of loan provided by the bank. If the borrower is not able to repay the credit taken, bank can sell the collateral to obtain payment. This makes the situation worse for the borrower as compared to the situation before taking the credit.

For Example:
A trader (borrower) takes a loan from bank to buy a raw material for his plant. He keeps a machine in plant as collateral. In a high risk situation; if he defaults, then this would lead the bank to confiscate his machine. In this situation trader would be worse off than before; as in future he wouldn’t have a machine to produce. In case he again takes up credit and is not able to repay again, he might end up in a situation of debt trap.

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

Ans-

Suppose there is a baker and a shoe seller in the town. Shoe seller wants to have a loaf of bread from the baker’s shop. In barter system, shoe seller has to wait until the time baker agrees to exchange loafs of bread for shoes. As the shoe seller has to wait for the baker to agree for the exchange, this gives a rise to problem of double coincidence of wants.If they use money as the medium of exchange they can solve the problem of double coincidence of wants; shoe seller can have a loaf of bread anytime he desires, he doesn’t need to wait for the baker to agree for the exchange

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

Ans-

Banks act as intermediaries between those who have surplus money and those who need money. Banks accept money in the form of deposits from people who have surplus and provide interest on deposit. Simultaneously, they provide loan to those who need money and charge interest from them. Interest rate charged on loan is higher than the interest provided on deposits.

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

Ans-

On a 10 rupee note, “Reserve Bank of India” and “Guaranteed by Central Government” are written on the top. This means that RBI has issued these notes on behalf of the Indian Government. And law legalizes the use of this note as a medium of payment which cannot be denied by any one in settlement of a transaction within India.

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

Ans-

There is a need to expand the formal sources of credit in India, to curb exploitation & harassment done by the informal sector.

  • Informal sector charges higher interests on loans than the formal sector.
  • Large part of earnings is used for repayment of loan.
  • There is no supervision on informal lending.
  • High rate of interests discourage small enterprises to take credit.
  • Sometimes this leads to debt trap, when income of the borrower is lower than the amount to be repaid.

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

Ans-

Self Help Groups (SHGs) for poor are organised to overcome the hurdle of exploitative money lenders, lack of collateral and to avail cheap credit timely in rural areas. SHGs are a group of 15-20 members, (especially women) belonging to a particular area. They pool up their savings depending upon the ability of each member to save. Members can avail a timely loan from the group itself to meet their requirements at a reasonable or lower interest than what the money lenders offer. SHGs are the building blocks of the rural economy as from these groups; members can avail loan very easily without any collateral. If the group is regular in their activities for more than a year, they are eligible to avail small loan from bank for creating self employment activities.All the important decisions regarding the saving and lending activities are taken by members of the group. In case a member is not able to repay, it is very seriously followed by other members. SHGs also help rural poor by providing them a platform to discuss the social issues such as health, nutrition, etc.

Q.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:

  • Lack of collateral
    Borrower might have no collateral, against which he can avail a loan from the bank. Banks are not willing to grant any loan to a borrower who has no collateral, as they’ll run into debt if borrower is not able to repay the loan.
  • Bad credit history
    Borrower might have a bad credit history, i.e. he might not have been able to repay his earlier loans.
  • Risky investment prospects of the borrower Borrower might be interested in investing in high risk project.

Q.8 In what ways does the Reserve Bank of India supervise the functioning of banks? Why is this necessary?

Ans-

The Reserve Bank of India supervises the functioning of the banks in the following ways:

  • Reserve bank being the central bank decides the guidelines for functioning of all the banks.
  • Banks need to have minimal cash reserve balances which are monitored & decided by RBI.
  • RBI makes sure that credit is equally rationed between big businesses and farmers, small scale industries, small scale borrowers, etc.
  • Banks needs to submit information to RBI periodically, regarding whom they are lending, how much and at what interest rate, etc.

It is necessary to have a central bank to supervise the functioning of banks so as to keep:

  • Uniformity in the banking system.
  • Ensure equality & quality in system of providing credit to everyone, irrespective of being a small or big borrower.
  • Setting a reasonable & uniform rate of interest on borrowings.
  • Avoid malpractices in the financial system.

Q.9 Analyse the role of credit for development.

Ans-

Credit plays a very important factor in the development of a country. Credit helps in expanding the scope of economic activities in an economy. Credit is required for different purposes.If the credit is provided to the farmers, small scale enterprises and profit making businesses, credit helps in expanding the production process of the economy.If the credit is provided for consumption purposes like home loan, car loan,it leads to increase in the demand in the economy. On a broader scale, credit is expanding the scope of economic activities in all sectors.

Q.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 has to compare the terms of credit of both lenders (Bank & Moneylender). He needs to compare the

  • Interest rate charged by both of them
  • Collateral required
  • Documentation requirement
  • Mode of repayment for both

To borrow from banks Manav must have proper documentation and collateral, or else he won’t be eligible for loan.

Q.11 In India, about 80% of farmers are small farmers, who need credit for cultivation.

  1. Why might banks be unwilling to lend to small farmers?
  2. What are the other sources from which small farmers can borrow?
  3. Explain with an example how the terms of credit can be unfavourable for the small farmer.
  4. Suggest some ways by which small farmers can get cheap credit.

Ans-

  1. Banks are unwilling to lend to small farmers because most of the small farmers do not have proper documentation and collateral to provide which are necessary requirements to avail a loan from banks.
  2. Small farmers can borrow from local money lenders, cooperative societies and SHGs.
  3. Suppose Perumal is a small farmer; he takes up a loan to meet the expenses of cultivation. Though he used expensive and high quality pesticide sprays on the crops, his field got infected by pest and as a result the crop failed. To pay the loan he had to sell a major part of his land making him worse off than earlier. Now, he has a small piece of land to work upon and has to take new loan to meet expenses or he has to work as a landless labourer.
  4. Small farmer can avail cheap loans from cooperative societies, agricultural banks or they can form Self Help Groups.

Q.12 Fill in the blanks:

  1. Majority of the credit needs of the_______ households are met from informal sources.
  2. ________ costs of borrowing increase the debt-burden.
  3. ________issues currency noted on the behalf of the central government.
  4. Banks charge a higher interest rate on loans than what they offer on _________.
  5. ________is an asset that the borrower owns and uses as a guarantee until the loan is repaid to the lender.

Ans-

  1. Majority of the credit needs of the _rural households are met from informal sources.
  2. __High_costs of borrowing increase the debt-burden.
  3. __Reserve bank of India_ issues currency notes on behalf of the central government.
  4. Banks charge a higher interest rate on loans than what they offer on _deposits_.
  5. __Collateral_ is an asset that the borrower owns and uses as a guarantee until the loan is repaid to the lender.

Q.13 Choose the most appropriate answer:

1. In a SHG most of the decisions regarding savings and loan activities are taken by
(a) Bank.
(b) Members.
(c) Non-government organisation.

2.Formal sources of credit does not include
(a) Banks.
(b) Cooperatives.
(c) Employers.

Ans-

  1. Correct choice: (b)Members

Explanation: SHGs comprise of 15-20 members, (especially women) belonging to a particular area and all the decisions regarding the savings & loan activities are taken by group members on collective basis.

  1. Correct choice:(c)Employers

Explanation: Formal sources of credit include banks and cooperatives only, while informal sources of credit include moneylenders, traders, employers, relatives, friends,etc.

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NCERT Class 10 Social Science Chapter-wise Solutions

Chapter 1 - Development

Chapter 2 - Sectors of the Indian Economy

Chapter 4 - Globalisation and the Indian Economy

Chapter 5 - Consumer Rights

FAQs (Frequently Asked Questions)

1. How would you explain Money?

Money is defined as anything widely accepted as a trading method by the public. The medium of exchange takes the shape of coins or banknotes. It makes buying and selling things simple. It enables us to purchase everything we require for our living and is also utilised to make loans. For a detailed version of the notes, please refer to Extramarks NCERT Solutions for Class 10 Economics Chapter 3.

2. How would you explain Informal Moneylenders?

People borrow money from informal money lenders. For example, they might be a family, friend, lender, trader, or employer. Informal moneylenders do not mandate to provide any collateral. There is no organisation to monitor their actions, and they mainly demand excessive interest rates on loans.