Money and Credit Class 10 Notes | Easy Explanation with Examples for Students

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📘 Class 10 Economics – Money and Credit (Easy Notes)

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1. Money as a Medium of Exchange

👉 Earlier, people used the Barter System (exchange of goods for goods).

• Example: A farmer gives wheat to a weaver and gets cloth in return.

Limitations of Barter System:

1. Double Coincidence of Wants – Both people must want what the other is offering.
   • Example: If a shoe maker wants rice, he must find a farmer who needs shoes.
2. Difficult to fix value of goods.
3. Hard to store wealth (can we store goats or wheat for future?).
4. Not practical for large transactions.

👉 Money solved this problem:

• Money is a medium of exchange.
• Everyone accepts money in exchange for goods & services.

📝 Teacher Tip: Remember → Barter → Problems → Money → Solution.

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2. Modern Forms of Money

(a) Currency

• Today we use paper notes and coins.
• They have no use of their own (paper has little value), but we accept them because:
  1. Government guarantees their value.
  2. People trust the RBI (Reserve Bank of India) which issues money.
• Legal tender: By law, everyone must accept it.

(b) Deposits with Banks

• People deposit savings in banks.
• Demand deposits = Money can be withdrawn anytime.
• Cheques = Written order to bank to pay someone from your account.

✅ Benefits of Deposits:

1. Safe (no risk of theft).
2. Earn interest.
3. Can be used for payments through cheques.
4. Cheaper than cash handling.

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3. Loan Activities of Banks

• Banks keep only a small part of deposits as cash reserve (for withdrawals).
• Remaining money is given as loans to borrowers.
• Borrowers repay loan with interest → Bank earns income.

📝 Example:

• Out of ₹100 deposits, bank may keep ₹15, lend ₹85 as loans.

👉 Teaching Trick: Think of banks as a bridge:

• Depositors (savers) → Banks → Borrowers (need money).

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4. Two Different Credit Situations

🔹 Credit (loan) can be good or bad:

1. Good Credit (Helpful)

• A farmer borrows to buy better seeds → earns more profit → repays loan easily.
• Credit helps in production, investment, higher income.

2. Bad Credit (Debt Trap)

• Farmer Swapna borrows for crops → crop fails → borrows more for pesticides → unable to repay → falls into debt trap.

📝 Remember:

• Cheap and timely credit = Good for development.
• Costly and risky credit = Leads to problems.

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5. Terms of Credit

Each loan has conditions:

1. Interest rate (extra amount to be paid).
2. Collateral – Borrower must give asset as guarantee (land, house, vehicle).
3. Documentation (papers, ID proof).
4. Mode of repayment (monthly, yearly, etc.).

👉 If loan not repaid, bank can sell collateral.

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6. Formal Sector Credit in India

Two Sources of Credit

• Formal sector: Banks, cooperatives.
• Informal sector: Moneylenders, traders, relatives.

✅ RBI’s Role:

• Monitors banks, interest rates.
• Ensures loans are given fairly.

🚩 Problem:

• Still, many rural households depend on moneylenders.
• Why? → Easy access, no paperwork, but charge very high interest.

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7. Self-Help Groups (SHGs)

Working

• Small groups (15–20 people, usually women).
• Members save money regularly.
• Pool money → give small loans to members.
• Later, group can take bank loan in group’s name.

Advantages

1. Provides cheap credit to poor.
2. Reduces dependence on moneylenders.
3. Encourages women empowerment.
4. Builds habit of saving and working together.
5. Loans used for income-generating activities.

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🎯 Quick Revision Points (Like Flashcards)

1. Barter system failed → Money as medium of exchange.
2. Modern money = Currency + Bank deposits.
3. Banks use deposits → keep some, lend rest.
4. Credit can be helpful or harmful (debt trap).
5. Loan = Interest + Collateral + Documents + Repayment terms.
6. Formal (banks, coops) vs Informal (moneylenders).
7. SHGs → small savings, collective loans, women empowerment.

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📘 Class 10 Economics – Money and Credit

Exam-Oriented Questions & Answers

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1. Multiple Choice Questions (MCQs)

Q1. The use of money makes it easier to:
a) Barter goods
b) Store wealth
c) Exchange services
d) Both (b) and (c)

✅ Answer: d) Both (b) and (c)

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Q2. Which of the following is not a feature of demand deposits?
a) Can be withdrawn anytime
b) Provide safety to savings
c) Earn interest
d) Cannot be withdrawn by cheque

✅ Answer: d) Cannot be withdrawn by cheque

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Q3. Who issues the currency notes in India?
a) Central Government
b) Reserve Bank of India
c) State Government
d) Commercial Banks

✅ Answer: b) Reserve Bank of India

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Q4. Collateral is:
a) The rate of interest charged on loans
b) A type of credit given to farmers
c) An asset given by the borrower as security
d) None of the above

✅ Answer: c) An asset given by the borrower as security

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Q5. Self-Help Groups (SHGs) mostly consist of:
a) Students
b) Rich landlords
c) Women
d) Traders

✅ Answer: c) Women

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2. Very Short Answer Questions (1 mark each)

Q1. What is the double coincidence of wants?
👉 When two people agree to exchange goods/services because each wants what the other has.

Q2. Define demand deposits.
👉 Deposits in bank accounts which can be withdrawn on demand.

Q3. What is a debt trap?
👉 When a borrower cannot repay loans and has to take further loans, falling into a cycle of debt.

Q4. Name two formal sources of credit.
👉 Banks and Cooperatives.

Q5. What is collateral?
👉 An asset pledged by the borrower to the lender until the loan is repaid.

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3. Short Answer Questions – Type I (2 marks)

Q1. Why is modern currency accepted as a medium of exchange?
👉 Because it is issued by the Reserve Bank of India and guaranteed by the government. People trust its value.

Q2. Mention two disadvantages of informal sources of credit.
👉 (i) They charge very high rates of interest.
(ii) They can exploit borrowers and push them into a debt trap.

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4. Short Answer Questions – Type II (3–4 marks)

Q1. Explain three advantages of deposits in banks.
👉 (i) Provide safety to people’s savings.
(ii) Earn interest on deposits.
(iii) Can be withdrawn anytime & used for payments via cheque.

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Q2. Differentiate between formal and informal sources of credit.

Formal Sources	Informal Sources
Banks, cooperatives	Moneylenders, traders, relatives
Regulated by RBI	Not regulated
Reasonable interest rates	Often very high interest rates
Legal protection to borrowers	No legal protection

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Q3. How do Self-Help Groups (SHGs) help the poor?
👉 (i) Provide small loans at low interest.
(ii) Reduce dependence on moneylenders.
(iii) Promote savings and group cooperation.
(iv) Encourage women empowerment.

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5. Long Answer Questions (5–6 marks)

Q1. Explain with examples how credit plays a vital and risky role in development.
👉 Credit is important because:

1. Helps in production and investment.
2. Increases income and employment.
3. Encourages use of modern technology.
   🔹 Example of Good Credit: Farmer borrows to buy better seeds → earns profit → repays loan → improves life.
   🔹 Example of Bad Credit: Swapna borrows for crops → crop fails → borrows again → unable to repay → falls in debt trap.
   Thus, credit can be helpful or harmful, depending on the situation.

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Q2. Describe the loan activities of banks with an example.
👉 1. Banks accept deposits from people.
2. A small part is kept as cash reserve (to pay depositors who withdraw).
3. The rest is given as loans to borrowers.
4. Borrowers repay loan with interest → Bank earns income.

🔹 Example: From ₹100 deposits, bank keeps ₹15 as reserve, lends ₹85. Borrowers repay with interest, and bank profits.
Thus, banks act as intermediaries between depositors and borrowers.

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Q3. What are Self-Help Groups? Explain their working and advantages.
👉 SHGs are small groups of 15–20 poor people (usually women) who pool their savings and give small loans to members.

Working:

• Members save money regularly.
• Pool savings and provide loans.
• Later, SHGs can take loans from banks in group’s name.

Advantages:

1. Provide cheap loans to poor.
2. Reduce dependence on moneylenders.
3. Encourage habit of saving.
4. Promote women’s participation in economic activities.
5. Help improve standard of living.

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