Money and Credit

This chapter has

Money and Credit — solved practice questions

8 Class 10 Economics questions with step-by-step solutions. Attempt each, then reveal the answer.

1. Q1easy

   Money acts as a medium of exchange, meaning:

   • Ait eliminates the need for a double coincidence of wants
   • Bit stores value permanently
   • Cit measures wealth
   • Dit is only paper
   Show answer & solution

   Correct answer: (A) it eliminates the need for a double coincidence of wants

   Money eliminates the need for a double coincidence of wants — instead of bartering, you can sell for money and buy what you need separately.

2. Q2easy

   The 'double coincidence of wants' was a problem in:

   • Amodern banking
   • Bthe barter system
   • Cdigital payments
   • Dstock markets
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   Correct answer: (B) the barter system

   In a barter system, trade requires both parties to want exactly what the other has — a double coincidence of wants, which is rare.

3. Q3easy

   Modern currency in India is issued by:

   • AState Bank of India
   • BReserve Bank of India
   • CFinance Ministry
   • DParliament
   Show answer & solution

   Correct answer: (B) Reserve Bank of India

   The Reserve Bank of India (RBI) issues currency notes on behalf of the Central Government. RBI is India's central bank.

4. Q4medium

   A 'demand deposit' is a bank deposit that:

   • Acan be withdrawn on demand at any time
   • Bis locked for a fixed period
   • Cearns no interest
   • Dis only for businesses
   Show answer & solution

   Correct answer: (A) can be withdrawn on demand at any time

   Demand deposits (current/savings accounts) can be withdrawn on demand at any time — they form part of the money supply.

5. Q5medium

   Banks in India keep a fraction of deposits as reserve (CRR) because:

   • Amost depositors don't withdraw all money at once
   • Bthe law forbids full use of deposits
   • Cthey earn interest on reserves
   • DRBI takes the rest
   Show answer & solution

   Correct answer: (A) most depositors don't withdraw all money at once

   Banks keep only a fraction (Cash Reserve Ratio) to meet daily withdrawals; the rest is lent out, creating credit and supporting economic activity.

6. Q6medium

   Credit (loan) can sometimes be a problem when:

   • Ainterest rates are zero
   • Bthe borrower cannot repay and falls into a debt trap
   • Cthe economy grows well
   • Dbanks give more loans
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   Correct answer: (B) the borrower cannot repay and falls into a debt trap

   If a loan-financed business fails, the borrower still owes the debt and may lose their assets — credit can worsen their situation ('debt trap').

7. Q7easy

   Collateral is:

   • Aan asset pledged as security for a loan
   • Ba type of currency
   • Ca government bond
   • Dbank interest
   Show answer & solution

   Correct answer: (A) an asset pledged as security for a loan

   Collateral is an asset (land, property, gold) pledged as security by a borrower. If the loan is not repaid, the lender can sell the collateral.

8. Q8easy

   Formal sources of credit in India include:

   • Abanks, cooperative societies
   • Bmoneylenders, friends
   • Cemployers, landlords
   • Dpawnbrokers
   Show answer & solution

   Correct answer: (A) banks, cooperative societies

   Formal sources are regulated by the RBI: banks, cooperative societies, and other regulated financial institutions.

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