KSEEB Class 10 Economics Important Questions Chapter 3 Money and Credit

Students can download Class 10 Economics Chapter 3 Money and Credit Important Questions, KSEEB SSLC Class 10 Social Science Important Questions and Answers helps you to revise the complete Karnataka State Board Syllabus and score more marks in your examinations.

Karnataka SSLC Class 10 Social Science Economics Important Questions Chapter 3 Money and Credit

Question 1.
Define money.
Answer:
According to Robertson, “Money is anything which is widely accepted in payment for goods or in discharge of other business obligations”.

Question 2.
How can you say that money is an important discovery?
Answer:
Money has made day-to-day transactions, valuing goods and services, as well as storing wealth for the future, easier. We can buy goods and services using money as it is a commonly accepted means of payment, measure and store of value.

Question 3.
List the various stages through which money has evolved.
Answer:
The different stages of evolution of money are:

  • Barter system
  • Commodity money
  • Metallic money
  • Paper money
  • Bank money, and
  • Plastic money.

Question 4.
What is barter system?
Answer:
Exchange of goods for goods without the use of money is called barter system.

KSEEB Class 10 Economics Important Questions Chapter 3 Money and Credit

Question 5.
What is commodity money?
Answer:
To solve the difficulties associated with barter system, a commodity of a prescribed size and weight was adopted as money or standard commodity. All things were measured in terms of that commodity for the purpose of exchange of goods. This is referred to as commodity money.

Question 6.
Name some of the commodities that were used as money in different countries.
Answer:
Some of the commodities that were used as money in different countries were cattle in Greece, sheep in Rome, teeth in China, etc.

Question 7.
Mention some metals that were used as money.
Answer:
Gold, silver, bronze, etc., were some of the metals that were used as money.

Question 8.
What qualities of metals made them a very suitable medium of exchange?
Answer:
The standard weight,fineness and general acceptability of metals such as gold, silver and bronze made them a very suitable medium of exchange. The coins minted out of these metals were of different denominations, were easily divisible, were portable and were convenient in making payments.

Question 9.
How did paper money come into existence?
Answer:
As the metallic coins were not safe to carry from one place to another, traders began to carry written documents issued by well known financiers as evidence of the quantity of money with them. These documents were accepted and exchanged for money. Later, governments started issuing such written documents referred to as promissory notes. Then, central banks established by the respective countries started printing notes that had the guarantee of the government. This paper money became legal tender or legally acceptable money.

Question 10.
What is legal tender money?
Answer:
Currency notes issued by the central banks of respective countries that has the guarantee of the government is called legal tender or legally accepted money.

KSEEB Class 10 Economics Important Questions Chapter 3 Money and Credit

Question 11.
What is bank money?
Answer:
As trade and commerce flourished, banks started issuing instruments for easier and faster transactions. This is called bank money. Cheques, drafts, deposit (credit) receipts, etc., are examples of such instruments.

Question 12.
What is plastic money?
Answer:
Banks issue credit and debit cards through which transactions and transfers of money take place. These cards are referred to as plastic money.

Question 13.
Why is plastic money referred to as e-money?
Answer:
Plastic money or credit and debit cards issued by banks are used for transactions and transfer of money. Since these transactions are done through electronic means, it is called e-money.

Question 14.
State the functions of money.
(OR)
State the primary functions of money.
(OR)
State the secondary functions of money.
Answer:
Primary functions:

  • Money is used as a medium of exchange or means of payment.
  • Money is used as a measure of value.Secondary functions:
  • Money is used as a standard of deferred payments.
  • Money is used as a store of value.
  • Money is used as a means for transfer of value.

Question 15.
Explain the functions of money.
Answer:
Primary functions: The primary or main functions of money are:
1. Medium of exchange or means of payment:
Money is used as a medium of exchange to facilitate transactions. It is used for buying and selling goods and for making corresponding payments.

2. Measure of value:
Money provides a common measure of the value of goods and services being exchanged. The prices of goods and services are expressed in terms. of money only. Hence it is easier to determine the value of goods and services with a common unit.

3. Secondary functions:
The secondary functions of money are:

  • Standard of deferred payments – Money as a standard of deferred payments means that money acts as a ‘standard’ for payments which ate to be made in the future.
  • Store of value – Money’s value can be retained over time. It is a convenient way to store wealth.
  • Transfer of value – Money also functions as a means of transferring value. Through money, value can be easily and quickly transferred from one place to another because money is acceptable everywhere and to all.

KSEEB Class 10 Economics Important Questions Chapter 3 Money and Credit

Question 16.
Define the term ‘banking’.
Answer:
The term ‘banking’ is defined as “accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand wise with drawable by cheque, draft, order or otherwise”.

Question 17.
Define‘banking companyl.
Answer:
The Indian Banking Regulation Act of 1949 defines a ‘bankir company’ as “any company which transacts the business of banking in India”.

Question 18.
Explain the structure of the banking system in India.
Answer:
The banking system in India consists of the State Bank of India and 20 public sector commercial banks, regional rural banks, private sector banks, and co-operative banks.

Question 29.
When were the commercial banks nationalised in India?
Answer:
Fourteen commercial banks were nationalised in 1969 and six in 1980.

Question 20.
Describe the importance of banks.
Answer:
Banks play an important role in economic development.

  • Banks mobilise the savings of the public and make them available to investors, thereby helping the process of capital formation.
  • Banks provide a convenient means of transfer of money through the accounts of customers.
  • They offer higher rate of interest on the money deposited by people.
  • They give loans to borrowers at lower rates of interest.
  • They also discount bills of exchange.
  • They lend money for the development of agriculture, industry and services.
  • Banks also invest in government securities.

KSEEB Class 10 Economics Important Questions Chapter 3 Money and Credit

Question 21.
Which is the central bank of India?
Answer:
The Reserve Bank of India is the central bank of India.

Question 22.
In which year was the Reserve Bank of India established and when was it nationalised?
Answer:
The Reserve Bank of India was established on April 1st, 1935 and nationalised on January 1st, 1949.

Question 23.
State the functions of the Reserve Bank of India.
Answer:
The functions of the Reserve Bank of India are:

  • It has the monopoly of note issue.
  • It is the banker to the government.
  • It acts as the banker’s .bank.
  • It acts as the national clearing house for settlement of transactions between banks.
  • It acts as the regulator and controller of credit in the economy.
  • It is the custodian of the foreign exchange reserves of the country.
  • It promotes banking habit through expansion of the banking system.

Question 24.
Explain the functions of the Reserve Bank of India.
Answer:
The functions of the Reserve Bank of India are as follows:
1. Monopoly of note issue:
The Reserve Bank of India has the sole right to issue currency notes except one rupee notes and coins which are issued by the Ministry of Finance. Currency notes issued by the Reserve Bank are declared unlimited legal tender throughout the country.

2. Banker to government:
The RBI accepts the deposits of central and state governments, collects money (taxes and other charges) and also makes payments on behalf of the government. It issues government bonds, treasury bills and also acts as financial adviser to the government. RBI also extends loans and advances to central and state governments as and when, necessary.

3. Banker’s bank:
It also acts as the bank for all banking institutions in the country. All the banks in the country have to keep a part of their deposits as reserves with the RBI. Whenever banks need additional money, RBI provides credit to them. RBI regulates the activities of banks and guides them in monetary management.

4. National Clearing House:
RBI acts as the clearing house for settlement of transactions across banks. This function helps banks to settle their inter-bank claims easily.

5. Controller of credit:
The RBI regulates the amount of credit issued by banks according to the monetary situation in the country.

6. Custodian of foreign exchange reserves:
The RBI is the custodian of foreign exchange reserves of the country through which it manages the foreign exchange rates. In order to reduce fluctuations in exchange rates, the RBI resorts to buying and selling of foreign currencies.

7. Promotion of banking habit:
The RBI promotes savings through expansion of the banking system in unbanked areas and financial literacy programmes.

KSEEB Class 10 Economics Important Questions Chapter 3 Money and Credit

Question 25.
Which bank is called ‘banker’s bank’? Why?
Answer:
The Reserve Bank of India is called ‘banker’s bank’. It is because the RBI acts as the bank for all banking institutions in the country. All the banks in the country have to keep a part of their deposits as reserves with the RBI. Whenever banks need additional money, RBI provides credit to them. RBI also regulates the activities of banks and guides them in monetary management.

Question 26.
How can you say that the Reserve Bank of India is the banker to the government?
Answer:
The RBI accepts deposits of the central and state governments, collects money (taxes and other charges) and also makes payments on behalf of the government. It issues government bonds, treasury bills and also acts as financial adviser to the government. RBI also extends short-term loans and advances to central and state governments as and when necessary. This shows that the RBI is the banker to the government.

Question 27.
Explain the role of the Reserve Bank of India in the economic development of India.
Answer:
The RBI has been playing an important role in framing the development strategy of the Indian economy. It has a rich tradition of data collection, generating useful economic research, and knowledge-sharing. RBI’s measures have helped the country to withstand many financial crises.

Question 28.
Which is the oldest existing central bank in the world?
Answer:
The Riksbank, the central bank of Sweden, established in 1668, is the oldest existing central bank in the world.

Question 29.
What is money supply?
(OR)
What constitutes money supply in a country?
Answer:
The currency notes and coins issued by the monetary authority of a country forms the money supply in the country at any given time.

Question 30.
What are demand deposits?
Answer:
The balances in the savings and current accounts which can be withdrawn at short notice and which the bank is liable to pay on demand are called demand deposits.

KSEEB Class 10 Economics Important Questions Chapter 3 Money and Credit

Question 31.
What are time deposits?
Answer:
Deposits having a fixed maturity period are called time deposits.

Question 32.
Explain the various concepts of money supply used in India.
Answer:
There are four measures of money supply in India which are denoted by M1,M2, M3 and M4.

  1. M1: M1 consists of
    • Currency with the public which includes notes and coins of all denominations in circulation excluding cash on hand with banks and
    • demand deposits with commercial and cooperative banks.This is referred to as narrow money.
  2. M2: M2 consists of M1 plus post office savings bank deposits. This is also referred to as narrow money.
  3. M3 : M3 consists of M1 plus time deposits with commercial and cooperative banks. This is referred to as broad money.
  4. M4 : M4 consists of M3 plus total post office deposits comprising time deposits and demand deposits. This is also referred to as broad money.

Question 33.
What are the effects of changes in money supply?
Answer:
Apart from the money supply, banks engage in credit creation which adds to the total money available in the economy. This money supply and the available supply of goods and services affect the demand for them and therefore, their prices. Thus, a higher supply of money without concomitant supply of goods would lead to a situation of inflation or a period of rising prices. On the other hand, a mild increase in prices is good for the economy. But a rapid or high increase is not good for economic growth. It affects the purchasing power of individuals, distribution of income in the country and the overall investment.

Question 34.
How does the Reserve Bank of India regulate prices in the economy?
Answer:
In order to regulate the prices, the RBI varies the supply of money. It also regulates the credit lending by banks’through certain quantitative and qualitative credit control measures.

Question 35.
What is monetary policy?
Answer:
The measures taken to regulate credit, the overall money supply in the economy and interest rates are together called monetary policy.

KSEEB Class 10 Economics Important Questions Chapter 3 Money and Credit

Question 36.
What is bank rate?
Answer:
The rate at which the RBI lends funds to banks is called bank rate.

Question 37.
What is cash reserve ratio (CRR)?
Answer:
Cash reserve ratio refers to that portion of its total deposits which a commercial bank has to keep with RBI as cash reserves.

Question 38.
What is statutory liquidity ratio (SLR)?
Answer:
Statutory liquidity ratio refers to that portion of its total deposits which a commercial bank has to keep with itself as liquid assets (gold, approved govt, securities etc.).

KSEEB Class 10 Economics Important Questions Chapter 3 Money and Credit

Question 39.
Mention the types of credit control measures of the RBI.
Answer:
The credit control measures of the RBI are classified into two types, namely,

  • quantitative credit control measures and
  • qualitative or selective credit control measures.

Question 40.
Distinguish between quantitative and qualitative credit control measures.
Answer:
The quantitative credit control measures directly affect the quantity of money available to the business and people. The qualitative or selective credit control measures affect the usage of credit for different purposes or the quality of usage of credit.

Question 41.
List the quantitative credit control measures.
Answer:
The quantitative credit control measures are: Bank rate policy, open market operations, and variable reserve ratio requirements.

Question 42.
List the qualitative credit control measures.
Answer:
The qualitative credit control measures are: Changes in lending margins, credit rationing, moral suasion and direct action.

Question 43.
Explain the quantitative credit control measures of the RBI.
Answer:
The quantitative credit control measures of the RBI are:
1. Bank rate policy:
The bank rate affects the rate at which banks can lend to borrowers. Higher the bank rate, lower the credit creation and vice versa. The RBI also varies the Repo rate and Reverse repo rate affecting the interest rate on short term borrowings and deposits respectively, of commercial banks, thereby affecting their capacity to lend.

2. Open market operations:
The buying and selling of government securities and bills in the open market by the Reserve bank of India is called open market operations. The aim is to control the volume of credit.

3. Variable reserve ratio requirements:
Banks are obliged to maintain reserves with the RBI. This is of two types – Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR). By varying the CRR and SLR rates, the RBI can vary.the lending capacity of banks.

KSEEB Class 10 Economics Important Questions Chapter 3 Money and Credit

Question 44.
Explain the qualitative or selective credit control measures of the RBI.
Answer:
The qualitative or selective credit control measures of the RBI are:
1. Changes in lending margins:
Under this method the RBI prescribes margin requirements that commercial banks have to maintain on collateral securities against which loans are provided to customers. RBI sets different margin requirements for different types of securities. A change in margin requirements influences the flow or direction of credit. An increase in margin requirements decreases the flow of credit while a decrease leads to an increase in the flow of credit.

2. Ceiling on credit or credit rationing:
The RBI fixes the maximum amount of credit that can be given to a particular sector. Rationing of credit is done to prevent excessive expansion of credit.

3. Moral suasion:
Moral suasion is a method of persuading the commercial banks to increase or reduce the credit to certain activities. The RBI does this through
periodical letters and circulars to banks.

4. Direct action:
When all the methods mentioned above prove ineffective in controlling credit, the RBi takes direct action by laying down spedfic rules and regulations under which commercial banks will operate. Strict action is taken against banks that refuse to follow the directions of the RBI.

Question 45.
Explain the various credit control methods adopted by RBI.
Answer:
The quantitative credit control measures of the RBI are:
1. Bank rate policy:
The bank rate affects the rate at which banks can lend to borrowers. Higher the bank rate, lower the credit creation and vice versa. The RBI also varies the Repo rate and Reverse repo rate affecting the interest rate on short term borrowings and deposits respectively, of commercial banks, thereby affecting their capacity to lend.

2. Open market operations:
The buying and selling of government securities and bills in the open market by the Reserve bank of India is called open market operations. The aim is to control the volume of credit.

3. Variable reserve ratio requirements:
Banks are obliged to maintain reserves with the RBI. This is of two types – Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR). By varying the CRR and SLR rates, the RBI can vary.the lending capacity of banks.

The qualitative or selective credit control measures of the RBI are:
1. Changes in lending margins:
Under this method the RBI prescribes margin requirements that commercial banks have to maintain on collateral securities against which loans are provided to customers. RBI sets different margin requirements for different types of securities. A change in margin requirements influences the flow or direction of credit. An increase in margin requirements decreases the flow of credit while a decrease leads to an increase in the flow of credit.

2. Ceiling on credit or credit rationing:
The RBI fixes the maximum amount of credit that can be given to a particular sector. Rationing of credit is done to prevent excessive expansion of credit.

3. Moral suasion:
Moral suasion is a method of persuading the commercial banks to increase or reduce the credit to certain activities. The RBI does this through
periodical letters and circulars to banks.

4. Direct action:
When all the methods mentioned above prove ineffective in controlling credit, the RBi takes direct action by laying down spedfic rules and regulations under which commercial banks will operate. Strict action is taken against banks that refuse to follow the directions of the RBI.

Question 46.
Expand the following abbreviations: RBI, CRR, SLR.
Answer:
RBI – Reserve Bank of India CRR – Cash Reserve Ratio SLR – Statutory Liquidity Ratio.

Multiple-choice Questions:

Question 1.
In the primitive stage people exchanged goods for goods without the use of money. This system is called –
(A) commodity exchange system
(B) commodity value system
(C) standard exchange system
(D) barter system
Answer:
(D) barter system

Question 2.
Legal tender money in India is –
(A) Rupee
(B) promissory note
(C) cheque
(D) demand draft
Answer:
(A) Rupee

KSEEB Class 10 Economics Important Questions Chapter 3 Money and Credit

Question 3.
Which of the following is a function of money?
(A) Medium of exchange
(B) Measure of value
(C) Store of value
(D) All of the above
Answer:
(D) All of the above

Question 4.
The central bank of India is –
(A) State Bank of India
(B) Reserve Bank of India
(C) Bank of India
(D) Indian Bank
Answer:
(B) Reserve Bank of India

Question 5.
As banker to the government, the RBI –
(A) acts as the banker’s bank.
(B) regulates the activities of banks.
(C) collects money and also makes payments on behalf of the government
(D) acts as the custodian’of foreign exchange reserves.
Answer:
(C) collects money and also makes payments on behalf of the government

Question 6.
The measures taken to regulate credit, overall money supply in the economy and interest rates are together called –
(A) monetary policy
(B) bank rate policy
(C) open market operations
(D) direct action
Answer:
(A) monetary policy

Question 7.
Which of the following is not a quantitative credit control measure?
(A) Open market operations
(B) Bank rate policy
(C) Varying the CRR and SLR
(D) Credit rationing
Answer:
(D) Credit rationing

Question 8.
The minimum cash which the banks have to keep with themselves as a ratio of their deposits is called –
(A) cash reserve ratio
(B) bank rate
(C) statutory liquidity ratio
(D) credit rationing
Answer:
(C) statutory liquidity ratio

Fill in the blanks:

    1. Barter is exchange of goods for (goods)
    2. Cheque is a form of (bank) money.
    3. The Reserve Bank of India was established in the year 1935
    4. The currency of Japan is Yen
    5. Government of India nationalised 14 commercial banks in the year 1969
    6. Narrow money comprises of M1 and M2
    7. Inflation occurs when supply of money is (higher)than the availability of goods and services in a country.

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