Page 88 - Understanding Economics for Class 10

4. Prove with an argument that there is a great need to expand formal sources of credit in
rural India.
Ans. Informal sources lend at whatever interest rate they choose. No one stops them from using
unfair means to get their money back. They tend to exploit poor. It is important that the
Goyal Brothers Prakashan
formal credit is distributed more equally so that the poor can benefit from the cheaper loans.

5. For what purposes do SHGs give loans to its members?
Ans. Small loans are provided to the members for releasing mortgaged land, for meeting working
capital needs like buying seeds, fertilizers, raw materials like bamboo and cloth for housing,
materials for acquiring assets like sewing machines, handloom, cattle, etc.

6. Give any two advantages of SHGs.
Ans. SHGs stands for Self-Helped Groups. The advantages of SHGs are:
(i) SHGs help borrowers overcome the problem of collateral.
(ii) They can get timely loans for a variety of purposes and at reasonable rates.

7. How is modern form of currency accepted as a medium of exchange?
Ans. Modern forms of money include currency—paper notes and coins. Modern currency is not
made of precious metals such as gold, silver and copper. The modern currency is without
any use of its own. In India, Reserve Bank of India issues currency notes on behalf of the
Central government. As per the Indian law, no other individual or organisation is allowed
to issue currency. No individual in India can legally refuse a payment made in rupees.

8. “Banks are efficient medium of exchange.” Support the statement with arguments.
Ans. Banks are efficient medium of exchange:
(i) Demand deposits share the essential features of money.
(ii) The facility of cheque against demand deposit makes it possible to directly settle payment
without the use of cash.
(iii) Demand deposits are accepted widely as a means of payment.

9. How are demand deposits accepted as a means of payment?
Ans. (i) Demand deposits offer an interesting facility. It helps in making the payment in cheque.
(ii) A cheque is a paper instructing the bank to pay a specific amount from the person’s
account to the other person or to the account holder.
(iii) Thus, we see that demand deposits share the essential features of money.
(iv) The facility of Cheques against demand deposits makes settlement of payments possible
without using money directly.
(v) Since demand deposits are accepted widely as a means of payment, along with currency,
they constitute money in the modern economy.

10. How do farmers get into debt trap?
Ans. Farmers usually take crop loans at the beginning of the season and repay the loan after harvest.
They have to pay interest (which is very high) along with principal amount. Sometimes,
the failure of the crop makes loan repayment impossible. So, the farmers have to sell a
part of their land to repay the loan. Credit in such a condition pushes the borrowers into a
situation from which recovery is painful and they get into the debt trap.

Economics Class X E-79