Class 10 Social Science Chapter 21 Money and Credit (Economics) PYQ

Class: X Subject: Social Science Session: 2025-26 Book: Economics Type: PYQ (Board Exam) Board: CBSE Chapter 3 : Money and Credit

SECTION A : Multiple Choice Questions (1 Mark Each)

Q1. What is the main reason why banks charge a higher interest rate on loans than they offer on deposits? [CBSE 2023] [1]
(a) To earn profit
(b) To pay tax
(c) To help the poor
(d) Government mandate Ans:
(a) To earn profit. The difference between interest charged on loans and interest paid on deposits is the main source of income for banks. ______________________________________________________________________________________________________________________________

Q2. What is collateral? [CBSE 2022] [1]
(a) A type of loan
(b) Asset used as guarantee against a loan
(c) A bank account
(d) A cheque Ans:
(b) An asset that the borrower owns and uses as a guarantee to the lender until the loan is repaid. E.g., land, building, vehicle, livestock, deposits. ______________________________________________________________________________________________________________________________

Q3. Which of the following is a formal source of credit? [CBSE 2024] [1]
(a) Moneylender
(b) Trader
(c) Commercial bank
(d) Relative Ans:
(c) Commercial bank. Formal sources include banks and cooperatives supervised by RBI. Informal sources include moneylenders, traders, employers, and friends. ______________________________________________________________________________________________________________________________

Q4. Which organisation supervises the functioning of formal sources of loans in India? [CBSE 2021] [1]
(a) Finance Ministry
(b) Reserve Bank of India
(c) SEBI
(d) NABARD Ans:
(b) Reserve Bank of India (RBI). It ensures banks maintain minimum cash balance, lend to all sectors including agriculture and small industry, and don't charge excessive interest. ______________________________________________________________________________________________________________________________

Q5. Self-Help Groups (SHGs) typically have how many members? [CBSE 2020] [1]
(a) 5-10
(b) 15-20
(c) 50-100
(d) 100-200 Ans:
(b) 15-20 members. SHGs are small groups of poor people, usually women, who pool their savings and give loans to members at reasonable interest rates. ______________________________________________________________________________________________________________________________

Q6. What is the barter system? [CBSE 2023] [1]
(a) Exchange of money for goods
(b) Exchange of goods for goods without money
(c) Bank transaction
(d) Online payment Ans:
(b) Exchange of goods for goods without using money. Its main drawback is the "double coincidence of wants" - both parties must want what the other has. ______________________________________________________________________________________________________________________________

Q7. What is meant by " double coincidence of wants"? [CBSE 2021] [1]
(a) Both buyer and seller agree on price
(b) Both parties have what the other wants
(c) Two banks agreeing to transfer money
(d) Government fixing prices Ans:
(b) Both parties have what the other wants. In a barter system, a person wanting shoes must find someone who has shoes AND wants what the first person has to offer. ______________________________________________________________________________________________________________________________

Q8. Which type of deposits in a bank earn interest? [CBSE 2022] [1]
(a) Demand deposits only
(b) Fixed/term deposits
(c) Both demand and fixed deposits
(d) Neither Ans:
(c) Both demand and fixed deposits earn interest. Fixed deposits earn higher interest as money is locked for a specific period. ______________________________________________________________________________________________________________________________

Q9. What percentage of their deposits are banks required to keep as cash? [CBSE 2020] [1]
(a) 100%
(b) About 50%
(c) About 15%
(d) 0% Ans:
(c) About 15%. Banks keep only a small fraction as cash for day-to-day withdrawals. The remaining major portion (about 85%) is given out as loans. ______________________________________________________________________________________________________________________________

Q10. Assertion
(a) : Formal sector loans are cheaper than informal sector loans. Reason (R): RBI supervises formal lenders and ensures fair interest rates. [CBSE 2024] [1]
(a) Both true and (R) correctly explains
(a)
(b) Both true but (R) does not explain
(a)
(c)
(a) is true but (R) is false
(d)
(a) is false Ans:
(a) Both are true and (R) correctly explains
(a) . RBI supervision keeps formal sector interest rates reasonable (8-12%) compared to informal (36-60% or more). ______________________________________________________________________________________________________________________________

SECTION B : Short Answer Questions (3 Marks Each)

Q11. Why are formal sources of credit preferred over informal sources? [CBSE 2023] [3] • Lower Interest: Banks charge 8-12% interest while moneylenders charge 36-60% or more. This makes formal credit much cheaper. • RBI Supervision: RBI ensures banks follow rules, maintain transparency, and don't exploit borrowers. No such regulation exists for moneylenders. • Debt Trap Prevention: Informal credit often leads to debt traps where borrowers can never repay. Formal credit has structured repayment and legal protection.

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Q12. Explain the role of Self-Help Groups (SHGs) in rural India. [CBSE 2024] [3] • Pooling Savings: 15-20 members (mostly women) save small amounts regularly. These savings are pooled and given as loans to members in need. • Collateral-Free: SHG loans don't need collateral. The group itself serves as guarantee. Interest rates are reasonable compared to moneylenders. • Women Empowerment: SHGs help rural women become financially independent, gain confidence, and discuss social issues like health, nutrition, and education.

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Q13. How do banks mediate between those who have surplus money and those who need money? [CBSE 2022] [3] • Accept Deposits: People with surplus money deposit it in banks as demand deposits or fixed deposits, earning interest. • Give Loans: Banks use the deposited money to give loans to those who need it for business, agriculture, housing, etc., at higher interest rate. • Profit: The difference between interest charged on loans and interest paid on deposits is the bank's income. Banks keep only 15% as cash reserves.

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Q14. What is the role of RBI in regulating formal sector loans ? [CBSE 2021] [3] • Sets Rules: RBI ensures banks keep minimum cash reserves (CRR). This protects depositors' money and maintains stability in the banking system. • Interest Regulation: RBI sets lending rates and ensures banks don't charge excessive interest. This keeps credit affordable for common people. • Priority Lending: RBI directs banks to lend to agriculture, small industries, and weaker sections of society, not just profitable urban businesses.

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Q15. Explain the term " debt trap " with reference to informal credit. [CBSE 2020] [3] • High Interest: Moneylenders charge 36-60% or even higher interest rates. Borrowers find it impossible to repay the principal plus accumulated interest. • Cycle of Debt: To repay one loan, borrowers take another loan at even higher rates. They get trapped in an ever-increasing cycle of debt. • Exploitation: Moneylenders may seize land, crops, or force bonded labour. Poor farmers and labourers are most vulnerable to this exploitation.

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SECTION C : Long Answer Questions (5 Marks Each)

Q16. "Banks and cooperatives need to lend more to the rural poor." Justify this statement. [CBSE 2024] [5] Ans: Rural poor desperately need formal credit access: • Current Reality: About 85% of rural credit comes from informal sources - moneylenders, traders, landlords - who charge very high interest. • Debt Trap: High informal interest rates push poor farmers into debt traps. Many commit suicide due to unpayable debts. • Cheap Credit Needed: Formal credit at 8-12% interest can help farmers buy seeds, fertilizers, and equipment, improving productivity and income.

• SHG Support: Banks should link with Self-Help Groups to reach the last mile. SHGs have proven successful in providing collateral-free credit. • Economic Growth: When rural poor get affordable credit, they invest in farms and businesses, creating employment and boosting the rural economy. ______________________________________________________________________________________________________________________________

Q17. Explain the modern forms of money with their advantages . [CBSE 2023] [5] Ans: Modern forms of money have evolved significantly: • Currency: Paper notes and coins issued by RBI on behalf of the central government. Accepted as medium of exchange throughout India by law. • Demand Deposits: Money deposited in banks that can be withdrawn on demand using cheques, ATM, or online banking. Safer than carrying cash. • Cheques: A paper instructing the bank to pay a specific amount from the person's account. Eliminates need for cash transactions.

• Digital Payments: UPI, mobile banking, debit/credit cards make transactions instant, secure, and traceable. India leads in digital payments globally. • Advantages: Modern money is easily portable, accepted universally, divisible into smaller units, and allows saving in banks that earn interest. ______________________________________________________________________________________________________________________________

Q18. Compare formal and informal sources of credit in India. [CBSE 2022] [5] Ans: Credit sources in India can be formal or informal: • Formal Sources: Banks, cooperatives, and micro-finance institutions. Supervised by RBI. Charge 8-12% interest. Require documentation and collateral. • Informal Sources: Moneylenders, traders, employers, relatives. No RBI supervision. Charge 36-60%+ interest. May exploit borrowers. • Access: Only about 50% of rural households access formal credit. The rest depend on informal sources due to lack of collateral and documentation.

• Debt Trap: Informal sources often lead to debt traps. Farmers and labourers suffer most. Many cases of farmer suicides linked to informal debt. • Solution: Expanding formal credit through bank branches, SHGs, and digital banking can reduce dependence on exploitative informal sources. ______________________________________________________________________________________________________________________________

Q19. How do Self-Help Groups help the poor? Explain their working and importance. [CBSE 2021] [5] Ans: Self-Help Groups (SHGs) are vital for financial inclusion: • Formation: 15-20 members, mostly women from similar economic backgrounds, form a group. They meet regularly and save small amounts. • Internal Lending: Pooled savings are given as small loans to members at low interest. No collateral needed - the group acts as mutual guarantee. • Bank Linkage: If a SHG functions well for a year, it becomes eligible for bank loans. Banks lend to the group at lower interest rates.

• Women Empowerment: Women gain financial independence, decision-making power, and social confidence. They discuss issues beyond finance - health, education, violence. • Rural Development: SHGs have helped millions escape poverty. The model has been particularly successful in states like Andhra Pradesh, Tamil Nadu, and Kerala. ______________________________________________________________________________________________________________________________

Q20. Why is cheap and affordable credit important for the country's development? [CBSE 2020] [5] Ans: Cheap credit is essential for India's development: • Agricultural Growth: Farmers need credit for seeds, fertilizers, and equipment. Affordable loans help them invest and increase productivity. • Small Business: Small manufacturers and traders need working capital. Cheap credit helps them expand business, create employment, and earn more. • Poverty Reduction: When poor people get affordable loans, they can start small enterprises, educate children, and improve their standard of living.

• Prevents Exploitation: Cheap formal credit reduces dependence on moneylenders who charge 36-60% interest and push borrowers into debt traps. • Economic Growth: Overall, affordable credit increases investment, production, and employment across sectors, driving national economic growth. ______________________________________________________________________________________________________________________________ --- End of Chapter 3 PYQ ---