About This Section

This section collects previous-year Board examination questions (CBSE and State Boards) from Chapter 3 — Money and Credit — with model answers, showing how the chapter is tested.

Board Previous Year Questions

Q1. How does money act as a medium of exchange and solve the problem of double coincidence of wants? (3 marks)

Answer: Money acts as a medium of exchange because it stands as an intermediate in every transaction: a person sells goods for money and then buys other goods with that money. In barter, exchange needs a double coincidence of wants — both parties must want each other's goods. Money removes this need: a shoe-maker who wants wheat simply sells shoes for money and buys wheat from anyone, without finding a farmer who also wants shoes.

Q2. Distinguish between formal and informal sources of credit. (3 marks)

Answer:

  • Lenders: formal = banks and cooperatives; informal = moneylenders, traders, employers, relatives.
  • Supervision: formal sources are supervised by the RBI; informal lenders are not supervised by anyone.
  • Interest & terms: formal loans carry reasonable interest; informal loans carry much higher interest and may involve unfair recovery methods.

Q3. 'Credit has both a positive and a negative role.' Explain using the examples of Salim and Swapna. (3 marks)

Answer: Positive role (Salim): Salim used credit to buy leather and hire workers for a festival order; he completed production, made a profit and repaid the loan, so credit increased his earnings. Negative role (Swapna): Swapna borrowed to grow groundnut, but a pest attack destroyed her crop; she could not repay, her debt grew, and she had to sell part of her land - a debt-trap. Thus credit helps when the venture succeeds but harms when there is high risk and no support.

Q4. What are the terms of credit? Why do most poor people find it difficult to obtain formal-sector loans? (5 marks)

Answer: The terms of credit are the conditions of a loan — the interest rate, collateral, documentation requirement and mode of repayment. Most poor people struggle to get formal loans because: (i) they cannot provide collateral (land, deposits) which banks demand as security; (ii) they lack the documents (employment or income records) banks require; and (iii) their incomes are irregular and risky, so banks fear non-repayment. As a result the poor are pushed towards costly informal lenders.

Q5. Explain the idea of Self-Help Groups. How do they help the rural poor? (5 marks)

Answer: A Self-Help Group (SHG) is a small group of about 15–20 poor people, usually women, who meet and save regularly. Members can take small loans from the group's pooled savings at low interest, and after regular saving the group becomes eligible for a bank loan sanctioned in the group's name. Since the group is responsible for repayment, banks lend without collateral. SHGs thus (i) give the poor timely, affordable credit, (ii) create self-employment, (iii) make women financially self-reliant, and (iv) provide a platform to act on social issues like health and domestic violence.