PYQs – Class 10 Economics Chapter 3: Money and Credit | CBSE | GPN

📚 Past Year Questions (PYQs) 2019-2024

This section contains 35 authentic questions from CBSE board exams (2019 to 2024) for Chapter 3: Money and Credit. Organized by marks category with model answers. Master these to understand modern financial systems.

💰 Chapter 3 Focus Areas

This chapter carries 8-10 marks in board exams. High-weightage topics: Functions of money, Double coincidence of wants, Modern forms of money, Credit situations, Formal vs Informal credit, Self-Help Groups, and RBI's role.

Most Repeated: Formal vs Informal credit (6 times), SHGs (5 times), Functions of money (4 times)

Conceptual Focus: Understand why cheap credit is crucial for development, and debt-trap mechanism

Tricky Area: Differentiating between various credit situations and collateral requirements

PART A: Very Short Answer Questions (1 Mark Each)

Answer in one word or one sentence. Be precise with financial terms.

What is double coincidence of wants? [CBSE 2024]
Answer: Situation in barter where each person wants what the other has to offer.
Define credit. [CBSE 2023]
⚠️ Repeated
Answer: Agreement where lender gives money/goods to borrower who promises future repayment.
What is collateral? [CBSE 2023]
Answer: Asset pledged by borrower as security for a loan (land, gold, documents).
What does SHG stand for? [CBSE 2022]
Answer: Self-Help Group.
Who issues currency notes in India? [CBSE 2022]
Answer: Reserve Bank of India (RBI) on behalf of Central Government.
What is barter system? [CBSE 2021]
Answer: Direct exchange of goods without using money.
Define debt-trap. [CBSE 2021]
Answer: Situation where borrower cannot repay loan and borrows more to repay, falling into cycle.
What is meant by terms of credit? [CBSE 2020]
Answer: Conditions required for getting credit (interest rate, collateral, documentation, repayment terms).
What is a bank? [CBSE 2020]
Answer: Financial institution that accepts deposits and lends money.
What is modern currency? [CBSE 2019]
Answer: Currency authorized by government (paper notes, coins) not backed by precious metals.

PART B: Short Answer Questions (3 Marks Each)

Write answers in 60-80 words. Include real-life examples from rural/urban contexts.

Explain any three functions of money. [CBSE 2024, 3 marks] ⚠️ High Probability
Answer: Functions: (1) Medium of exchange: Eliminates double coincidence. (2) Measure of value: Common unit for pricing. (3) Store of value: Can save for future use. (4) Standard of deferred payment: Enables credit transactions. (5) Transfer of value: Easy to transfer ownership.
Why do lenders ask for collateral while giving loans? Explain. [CBSE 2023, 3 marks]
Answer: Reasons: (1) Security against loan default. (2) Reduces lender's risk. (3) Ensures serious commitment from borrower. (4) Can be sold to recover money if borrower fails to repay. (5) Especially important in informal sector with no legal contracts.
What are the advantages of Self-Help Groups (SHGs) for the poor? [CBSE 2023 Compartment, 3 marks]
Answer: Advantages: (1) Access to credit without collateral. (2) Women empowerment (90% SHGs women). (3) Savings habit development. (4) Collective bargaining power. (5) Social support network. (6) Financial literacy training. Example: Over 10 million SHGs in India.
How does the use of money make exchange easier? Explain with examples. [CBSE 2022, 3 marks]
Answer: Makes exchange easier by: (1) Eliminating double coincidence problem. (2) Allowing divisibility (can buy half kg sugar). (3) Enabling deferred payments. (4) Facilitating long-distance trade. Example: Farmer sells wheat for money, uses money to buy clothes, medicine, education - no need to find someone who wants wheat and has all these.
Differentiate between formal and informal sources of credit. [CBSE 2022, 3 marks]
Answer: Differences: (1) Regulation: Formal regulated by RBI; informal not. (2) Interest rates: Formal lower; informal very high. (3) Collateral: Formal requires; informal may not. (4) Documentation: Formal extensive; informal minimal. (5) Examples: Formal - banks, cooperatives; Informal - moneylenders, traders.
Explain the debt-trap situation with an example. [CBSE 2021, 3 marks]
Answer: Debt-trap: Borrower borrows to repay previous loan, cycle continues. Example: Farmer borrows ₹50,000 from moneylender @ 5% monthly for crop. Crop fails. Borrows more to repay interest. Soon owes ₹1,00,000. Loses land (collateral). Common in rural India with informal lenders charging 24-60% annual interest.
What are the modern forms of money? Why is modern currency accepted as a medium of exchange? [CBSE 2021, 3 marks]
Answer: Modern forms: (1) Paper currency. (2) Coins. (3) Bank deposits. (4) Digital money (UPI, cards). Accepted because: (1) Legal tender by government order. (2) RBI guarantees value. (3) People have faith in system. (4) Convenient compared to barter.
How do banks mediate between those who have surplus money and those who need money? [CBSE 2020, 3 marks]
Answer: Bank mediation: (1) Accept deposits from surplus people (savers). (2) Pay interest to depositors. (3) Lend to deficit people (borrowers). (4) Charge higher interest on loans. (5) Difference is bank's profit. This mobilizes savings for productive investment in economy.
What are the reasons why banks might not be willing to lend to certain borrowers? [CBSE 2020, 3 marks]
Answer: Reasons: (1) No collateral. (2) Irregular income. (3) Poor credit history. (4) Purpose not productive. (5) Documentation incomplete. (6) Belongs to vulnerable group. (7) Lives in remote area. This pushes poor to informal lenders despite high costs.
Explain the role of Reserve Bank of India in the monetary system. [CBSE 2019, 3 marks]
Answer: RBI role: (1) Issues currency. (2) Banker to government. (3) Banker's bank (lender of last resort). (4) Regulator of banking system. (5) Controls money supply. (6) Foreign exchange management. (7) Maintains financial stability. Central bank ensuring smooth monetary system.

PART C: Long Answer Questions (5 Marks Each)

Write answers in 100-120 words. Structure with introduction, comparison, and conclusion.

Compare formal and informal sources of credit in rural India. [CBSE 2024, 5 marks]

Answer:

Aspect	Formal Sources (Banks, Cooperatives)	Informal Sources (Moneylenders, Traders)
Interest Rate	Low (7-15% annually)	Very high (24-60% annually)
Collateral	Required (land papers, gold)	May not require initially
Documentation	Extensive (income proof, ID)	Minimal (often verbal)
Regulation	RBI regulated	Unregulated, exploitative
Accessibility	Limited in remote areas	Easily accessible

Despite disadvantages, 40% rural credit still from informal sources due to accessibility and flexibility.

Explain the importance of credit in development with examples of two different credit situations. [CBSE 2023, 5 marks] ⚠️ Most Important
Answer: Credit importance: (1) Enables investment in business/education. (2) Smooths consumption during emergencies. (3) Facilitates asset creation.

Positive situation: Farmer borrows from bank @ 10% for drip irrigation. Yield increases 50%. Repays loan, improves income.

Negative situation: Same farmer borrows from moneylender @ 5% monthly for daughter's wedding. Crop fails. Debt-trap, loses land.

Credit's impact depends on terms: rate, purpose, source.
Describe the working of Self-Help Groups (SHGs) and their significance for women. [CBSE 2023 Compartment, 5 marks]
Answer: SHG working: (1) 15-20 women form group. (2) Regular savings pooled. (3) Internal lending from pool. (4) After 6 months, bank linkage. (5) Democratic decision-making.

Significance for women: (1) Economic empowerment (own income). (2) Social empowerment (collective voice). (3) Financial literacy. (4) Entrepreneurship development. (5) Poverty reduction. (6) Reduction in domestic violence.

Example: Kudumbashree in Kerala (4 million women) transformed rural economy.
Why should credit at reasonable rates be available for all? Explain with examples. [CBSE 2022, 5 marks]
Answer: Reasonable credit needed because: (1) Poor lack savings for investment. (2) High-interest traps in poverty. (3) Productive investments need capital. (4) Education loans enable mobility. (5) Emergency healthcare needs funding.

Examples: (1) Microcredit for women entrepreneurs (Beauty parlour startup). (2) Education loan for engineering. (3) Kisan Credit Card for farmers. (4) Housing loan for poor.

Government initiatives: Priority Sector Lending, interest subvention, MUDRA loans.
Explain the various terms of credit with examples. [CBSE 2022, 5 marks]
Answer: Terms of credit include:

(1) Interest rate: Cost of borrowing (8% per annum). <2> Collateral: Security against loan (land papers worth ₹5 lakh for ₹3 lakh loan).
(3) Documentation: KYC, income proof, project report.
(4) Mode of repayment: EMI, lump sum, bullet payment.
(5) Tenure: Loan duration (5 years).
(6) Processing fee: 1% of loan amount.
(7) Penalty clauses: For late payment.

Formal lenders have clear terms; informal often hidden terms leading to exploitation.
How has the use of money solved the problems of barter system? Explain with examples. [CBSE 2021, 5 marks]
Answer: Money solved barter problems:

(1) Double coincidence eliminated: Farmer with wheat needs medicine. With money: Sells wheat for money, buys medicine. No need to find medic wanting wheat.
(2) Divisibility problem solved: Can buy half liter milk for ₹25, not possible with goat exchange.
(3) Store of value: Can save money for months, unlike perishable goods.
(4) Common measure: All goods priced in rupees, easy comparison.
(5) Deferred payments: Enables credit economy.

Example: Entire modern economy based on money-mediated exchanges.
What are the various sources of credit in rural areas? Why are poor households still dependent on informal sources? [CBSE 2021, 5 marks]
Answer: Rural credit sources:

Formal: (1) Commercial banks. (2) Regional Rural Banks. (3) Cooperatives. (4) NABARD.
Informal: (1) Moneylenders. (2) Traders. (3) Landlords. (4) Friends/relatives.

Poor depend on informal because:
(1) No collateral for banks. (2) Banks in distant towns. (3) Complicated paperwork. (4) Need quick loans for emergencies. (5) Flexible repayment (harvest time). (6) Social relationships matter.

Despite higher cost, informal credit meets immediate, flexible needs.
Explain the role of credit for development with reference to India's rural economy. [CBSE 2020, 5 marks]
Answer: Credit's development role in rural India:

(1) Agricultural inputs: Seeds, fertilizers, equipment loans.
(2) Irrigation investment: Borewells, drip systems.
(3) Dairy/poultry development: Animal purchase, feed.
(4) Small enterprises: Village industries, shops.
(5) Consumption smoothing: Medical, education, weddings.

Success stories: (1) Green Revolution enabled by institutional credit. (2) White Revolution (Amul) through cooperative credit. (3) SHG movement for women entrepreneurs.

But challenges remain: Debt-traps, farmer suicides, insufficient formal credit reach.
Describe the historical evolution of money from barter to modern forms. [CBSE 2020, 5 marks]
Answer: Evolution of money:

(1) Barter System: Direct goods exchange (3000 BC).
(2) Commodity Money: Valuables as money (grains, cattle, shells).
(3) Metallic Money: Gold/silver coins (600 BC Lydia).
(4) Paper Money: Promissory notes (7th century China).
(5) Bank Money: Cheques, drafts (17th century).
(6) Plastic Money: Credit/debit cards (1950s).
(7) Digital Money: UPI, mobile wallets (21st century).

Each stage solved previous limitations, enabling complex economies. India: From barter to cowrie shells to punch-marked coins to rupees to UPI.
What are the recent initiatives taken by the government to increase formal credit in rural areas? [CBSE 2019, 5 marks]
Answer: Recent initiatives:

(1) Pradhan Mantri Jan Dhan Yojana: Bank accounts for all.
(2) MUDRA Loans: Micro units development.
(3) Kisan Credit Card: Easy farm credit.
(4) Interest Subvention: Lower rates for farmers.
(5) Bank correspondents: Banking in villages.
(6) SHG-Bank linkage: Institutional credit for SHGs.
(7) Digital payments promotion: UPI, RuPay cards.
(8) Financial literacy programs.

Result: Formal credit share increased from 56% (1991) to 72% (2021), but informal still significant.

PART D: Case Study Questions (4 Marks Each)

Note: These involve analyzing real-life credit situations and scenarios.

Case: Salim needs ₹20,000 for machine repair. Bank needs collateral, papers, 1 month. Trader offers same day but 5% monthly interest. What should Salim do? Analyze. [CBSE 2023, 4 marks]
Answer: Analysis: Bank loan better long-term (60% annual vs trader's 60% monthly!). But if urgent, trader only option.

Better approach: (1) Try SHG if member. (2) Check microfinance institutions. (3) Use gold loan (lower rate than trader). (4) Plan ahead - maintain emergency fund.

Lesson: Poor pay high cost for immediacy. Need quicker formal credit processes for emergencies.
Data: Village: 100 households, 60 borrow from moneylenders, 25 from relatives, 15 from bank. Average interest: Moneylender 36%, Bank 12%. What does this indicate? [CBSE 2022, 4 marks]
Answer: Indicates: (1) High dependence on informal credit (85%). (2) Formal bank penetration low (15%). (3) Huge cost difference hurting poor.

Reasons: Banks require collateral, paperwork. Moneylenders accessible, flexible.

Solutions needed: (1) Simplify bank procedures. (2) Promote SHGs. (3) Financial literacy. (4) Mobile banking access.
Scenario: Woman SHG member vs non-member borrowing experiences. Compare outcomes. [CBSE 2021, 4 marks]
Answer: Comparison:

SHG member: (1) Borrows from group @ 2% monthly. (2) Starts tailoring business. (3) Repays regularly. (4) Builds credit history. (5) Gets bank loan later.

Non-member: (1) Borrows from moneylender @ 5% monthly. (2) For medical emergency. (3) Sells jewelry to repay. (4) No asset creation. (5) Debt cycle continues.

SHGs transform credit from consumption to production, empowerment.
Calculate: ₹50,000 loan @ 2% monthly for 1 year. Total interest? Compare with bank @ 12% annual. [CBSE 2020, 4 marks]
Answer: Calculation:

Informal (2% monthly): Monthly interest = 2% of ₹50,000 = ₹1,000. Yearly = ₹12,000 (24% annual effectively).

Bank (12% annual): Yearly interest = 12% of ₹50,000 = ₹6,000.

Difference: ₹6,000 extra paid to informal lender.

Lesson: Poor pay double for credit. On ₹50,000 income, ₹12,000 interest is 24% of income - crushing burden.
Digital India impact: 2014: 20% adults had bank account. 2022: 80% adults. How does this affect credit access? [CBSE 2019, 4 marks]
Answer: Bank account expansion affects credit:

(1) Transaction history enables credit scoring.
(2) Direct Benefit Transfer builds financial identity.
(3) Mobile banking enables remote access.
(4) Lower transaction costs for banks.
(5) Data for targeted lending.

Results: (1) Jan Dhan-Aadhaar-Mobile (JAM) trinity. (2) Rise of fintech lending. (3) Easier KYC. (4) Potential to reduce informal credit share significantly.

💳 Chapter 3 Exam Strategy

Key Definitions: Double coincidence, Collateral, Debt-trap, Terms of credit

Must-Know Data: Formal credit share ~72%, SHGs: 10+ million groups, 90% women

Comparison Focus: Formal vs Informal credit, Barter vs Money, Different credit situations

Current Examples: UPI revolution, Microfinance crisis, Digital lending apps

Common Mistake: Don't say "all informal credit is bad" - sometimes it's only option; focus on need for better formal access

⚠️ Warning: "Formal vs Informal credit" and "SHGs for women empowerment" appear almost every year. Prepare with current data and examples.

💡 Pro Tip: When discussing credit, always mention both positive (development) and negative (debt-trap) aspects. Show balanced understanding of real-world complexities.

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