🌟 Introduction

Money and Credit is one of the most important chapters in the Class 10 CBSE Economics syllabus. For students preparing for CBSE Board examinations, solving Previous Year Questions (PYQs) is the most effective way to understand the exam pattern, marking scheme, and frequently repeated themes. At Dhingra Classes Nashik, we have compiled the most important PYQs from this chapter, organized by marks weightage, to help Class 10 students score maximum marks.

This chapter covers Money as a Medium of Exchange, Modern Forms of Money, Currency, Demand Deposits, Cheques, Banks, Credit, Terms of Credit, Interest Rate, Collateral, Formal Sector Loans, Informal Sector Loans, Self-Help Groups (SHGs), and Grameen Bank. These PYQs have been collected from CBSE Board exams across multiple years and are essential for effective board exam preparation .

📚 Why Solving PYQs Is Important for CBSE Class 10

Before diving into the questions, let us understand why Previous Year Questions are crucial for Class 10 CBSE students.

🎯 Benefits of Solving PYQs

• ✅ Understanding Exam Pattern: PYQs reveal how questions are framed

• 📝 Identifying Repeated Themes: Many questions repeat with slight variations

• 🧠 Better Answer Writing: PYQs help practice structured answers

• 🏆 Higher Scores: Familiarity with question types reduces exam stress

• 📊 Time Management: Practice helps allocate time per question correctly

• 💡 Real-Life Application: Many PYQs relate to daily financial decisions

📖 1 Mark Questions (Very Short Answer Type)

These questions are typically asked as MCQs, Assertion-Reason, or one-line answers. They test factual knowledge and basic understanding .

Set A: MCQs and One-Line Answers

Set B: Assertion-Reason Questions

Question 1: Assertion (A): Banks are the formal sources of credit in India. Reason (R): They charge a higher rate of interest than informal sources.
Answer: (c) A is true but R is false .

Question 2: Assertion (A): The rupee is accepted as a medium of exchange in India. Reason (R): It is authorized by the government of India.
Answer: Both A and R are true and R is the correct explanation of A .

📖 2 Marks Questions (Short Answer Type I)

These questions require two points or brief explanations and are designed to test conceptual understanding .

Question 1: Why is money called a medium of exchange?

Answer:

• Money acts as an intermediate in the exchange process, eliminating the need for a double coincidence of wants .

• It facilitates the exchange of goods and services and is accepted by all as a medium of exchange .

Question 2: What are demand deposits? Why are they considered as money?

Answer:

• Demand deposits are deposits in bank accounts that can be withdrawn on demand by the account holder .

• They are considered as money because they can be used for making payments through cheques, and they are accepted as a medium of exchange .

Question 3: What is a cheque? How does it function as a medium of exchange?

Answer:

• A cheque is a paper instructing the bank to pay a specific amount from a person’s account to another person .

• It functions as a medium of exchange by allowing direct payment from one bank account to another without the use of cash .

Question 4: What is collateral? Why do lenders ask for collateral?

Answer:

• Collateral is an asset that the borrower owns and uses as a guarantee to a lender until the loan is repaid .

• Lenders ask for collateral as a security against non-repayment of the loan .

Question 5: Why do banks ask for collateral before giving loans?

Answer:

• Banks ask for collateral to ensure that the loan is repaid on time .

• If the borrower fails to repay the loan, the bank can sell the collateral to recover the loan amount .

Question 6: What are the two different types of sources of credit?

Answer:

• Formal sources: Banks, cooperatives, and financial institutions that are registered and regulated by the government .

• Informal sources: Moneylenders, traders, employers, relatives, and friends that are not registered with the government .

Question 7: Why is it necessary for the banks to increase their lending activities in rural areas?

Answer:

• To reduce the dependence of farmers on informal sources of credit like moneylenders .

• To provide cheap and affordable credit to farmers, which is crucial for agricultural development .

Question 8: What is the main objective of Self-Help Groups (SHGs)?

Answer:

• SHGs aim to pool savings and provide loans to their members at reasonable interest rates .

• They help the rural poor, especially women, become self-reliant and gain access to credit .

📖 3 Marks Questions (Short Answer Type II)

These questions require detailed explanations with three distinct points and test analytical understanding .

Question 1: Explain the role of banks in the economy.

Answer:

• Accepting Deposits: Banks accept deposits from people and keep only a small proportion of it as cash for daily transactions .

• Providing Loans: Banks use the major portion of deposits to extend loans to businesses and individuals, thereby promoting economic activity .

• Mediating Between Depositors and Borrowers: Banks act as intermediaries, where depositors earn interest and borrowers pay interest, creating a spread for the bank’s income .

Question 2: Why do we need a formal source of credit? Explain any three reasons.

Answer:

• Cheap and Affordable Credit: Formal sources like banks provide loans at lower interest rates compared to informal sources .

• Regulation and Supervision: The Reserve Bank of India (RBI) supervises and regulates formal sources, ensuring fair practices .

• Productive Use: Formal credit is often used for productive purposes such as agriculture, business, and education, contributing to economic development .

Question 3: Explain the different types of loans provided by banks.

Answer:

• Consumption Loans: Loans taken for personal consumption needs such as buying a house, car, or household items .

• Productive Loans: Loans taken for productive purposes such as agriculture, business, or education, which generate income and repay the loan .

• Housing Loans: Loans specifically for the construction or purchase of a house, usually of a larger amount and for a longer duration .

Question 4: Why are the terms of credit different for different borrowers?

Answer:

• Interest Rate: Varies depending on the borrower’s creditworthiness, collateral, and the lender’s risk perception .

• Collateral: Borrowers with collateral may get loans at lower interest rates than those without .

• Documentation: Borrowers may need to provide different types of documents and fulfill different requirements based on the loan amount and purpose .

Question 5: Explain the importance of credit in the development of a country.

Answer:

• Economic Development: Credit is essential for the development of agriculture, industry, and services, contributing to GDP growth .

• Poverty Reduction: Access to cheap credit helps the poor start small businesses and improve their livelihoods .

• Employment Generation: Credit leads to the establishment of new enterprises, creating employment opportunities .

Question 6: How do Self-Help Groups help the rural poor?

Answer:

• Access to Credit: SHGs provide loans to their members at reasonable interest rates, freeing them from the exploitation of moneylenders .

• Financial Inclusion: SHGs encourage the habit of saving and provide access to formal sources of credit .

• Empowerment: SHGs empower women and marginalized communities by giving them a platform to voice their concerns and make financial decisions .

Question 7: Explain the difference between formal and informal sources of credit.

Answer:

• Regulation: Formal sources are registered and regulated by the government (RBI); informal sources are not .

• Interest Rate: Formal sources charge lower interest rates; informal sources charge higher interest rates .

• Supervision: Formal sources are supervised by the RBI; informal sources are not supervised by any government authority .

Question 8: What is the role of the Reserve Bank of India (RBI) in the credit market?

Answer:

• Supervision: RBI supervises and regulates the functioning of formal sources of loans, such as banks and cooperatives .

• Monetary Policy: RBI formulates and implements monetary policy to control the supply of money and credit in the economy .

• Issue of Currency: RBI has the sole authority to issue currency notes on behalf of the central government .

Question 9: Explain the terms of credit with examples.

Answer:

• Interest Rate: The rate at which interest is charged on the loan; e.g., a bank may charge 10% interest per annum .

• Collateral: An asset that the borrower owns and uses as a guarantee; e.g., land, house, or gold .

• Documentation: The papers and agreements required for the loan; e.g., identity proof, income proof, and loan agreement .

Question 10: How do banks play an important role in the economy of India?

Answer:

• Mobilization of Savings: Banks collect savings from households and channel them into productive investments .

• Provision of Credit: Banks provide loans to businesses, farmers, and individuals, promoting economic activity .

• Payment System: Banks facilitate payments through cheques, demand drafts, and electronic transfers, ensuring smooth transactions .

Question 11: Why do the poor depend on informal sources of credit?

Answer:

• Lack of Collateral: The poor often do not have assets like land or property to offer as collateral for bank loans .

• Documentation Issues: They may lack the necessary documents and credit history required by formal institutions .

• Immediate Need: Informal sources are often more accessible and provide quick loans, especially in emergencies .

Question 12: Explain the significance of credit for economic development.

Answer:

• Agricultural Development: Credit helps farmers buy seeds, fertilizers, and equipment, increasing agricultural productivity .

• Industrial Growth: Credit enables entrepreneurs to start new businesses and expand existing ones, leading to industrial growth .

• Employment Generation: Investment in new ventures creates employment opportunities, reducing unemployment and poverty .

📖 5 Marks Questions (Long Answer Type)

These questions require comprehensive answers with five distinct points and test in-depth understanding and analytical skills .

Question 1: Explain the importance of formal sources of credit in the Indian economy.

Answer:

• Cheap and Affordable Credit: Formal sources like banks provide loans at lower interest rates compared to informal sources, reducing the financial burden on borrowers .

• Regulation and Supervision: The Reserve Bank of India (RBI) supervises and regulates formal sources of credit, ensuring fair practices and protecting borrowers from exploitation .

• Productive Use of Loans: Formal credit is often used for productive purposes such as agriculture, business, and education, contributing to economic development and employment generation .

• Financial Inclusion: Formal sources promote financial inclusion by providing banking services to the unbanked, especially in rural areas .

• Reduction of Poverty: Access to formal credit helps the poor start small businesses, improve their livelihoods, and break the cycle of poverty .

Question 2: Why do the poor households depend on informal sources of credit? Explain.

Answer:

• Lack of Collateral: The poor often do not have assets like land, property, or gold to offer as collateral for bank loans .

• Documentation Issues: They may lack the necessary documents such as identity proof, income proof, and credit history required by formal institutions .

• Immediate Need: Informal sources are often more accessible and provide quick loans, especially in emergencies .

• Illiteracy: Many poor people are illiterate and unaware of formal banking procedures and facilities .

• Social Factors: In some communities, informal sources are preferred due to social relationships and trust .

Question 3: Explain the role of credit in the economic development of a country.

Answer:

• Agricultural Development: Credit helps farmers buy seeds, fertilizers, and equipment, increasing agricultural productivity .

• Industrial Growth: Credit enables entrepreneurs to start new businesses and expand existing ones, leading to industrial growth .

• Employment Generation: Investment in new ventures creates employment opportunities, reducing unemployment and poverty .

• Infrastructure Development: Credit is essential for building infrastructure like roads, bridges, and power plants, which supports economic development .

• Poverty Reduction: Access to cheap credit helps the poor start small businesses and improve their livelihoods, reducing poverty .

Question 4: Explain the importance of Self-Help Groups (SHGs) for the rural poor.

Answer:

• Access to Credit: SHGs provide loans to their members at reasonable interest rates, freeing them from the exploitation of moneylenders .

• Financial Inclusion: SHGs encourage the habit of saving and provide access to formal sources of credit .

• Empowerment: SHGs empower women and marginalized communities by giving them a platform to voice their concerns and make financial decisions .

• Social Development: SHGs also focus on social issues such as health, education, and sanitation, contributing to the overall development of the community .

• Economic Development: SHGs promote self-employment and income-generating activities, contributing to the economic development of rural areas .

Question 5: Why are the terms of credit different for different borrowers? Explain with examples.

Answer:

• Interest Rate: Varies depending on the borrower’s creditworthiness, collateral, and the lender’s risk perception; e.g., a farmer with land as collateral may get a loan at 7% interest, while a landless labourer may have to pay 12% .

• Collateral: Borrowers with collateral may get loans at lower interest rates than those without .

• Documentation: Borrowers may need to provide different types of documents and fulfill different requirements based on the loan amount and purpose .

• Repayment Schedule: The repayment schedule may vary based on the borrower’s income pattern; e.g., farmers may get a longer repayment period after harvest .

• Purpose of Loan: Loans for productive purposes may have different terms than loans for consumption purposes .

Question 6: Explain the functions of money.

Answer:

• Medium of Exchange: Money acts as an intermediate in the exchange process, eliminating the need for a double coincidence of wants .

• Measure of Value: Money serves as a common measure of value, allowing the value of goods and services to be expressed in a common unit .

• Store of Value: Money can be stored for future use, allowing people to save and accumulate wealth .

• Standard of Deferred Payment: Money is used for future payments, such as loan repayments and salaries .

• Transfer of Value: Money facilitates the transfer of value from one person to another, and from one place to another .

Question 7: How do banks mediate between those who have surplus money and those who need money?

Answer:

• Accepting Deposits: Banks accept deposits from people who have surplus money, and pay them interest on their deposits .

• Providing Loans: Banks use the major portion of deposits to extend loans to businesses and individuals who need money, and charge interest on loans .

• Mediating Role: Banks act as intermediaries, where depositors earn interest and borrowers pay interest, creating a spread for the bank’s income .

• Creation of Credit: Banks create credit by lending more than the cash they hold, as only a small proportion of deposits is kept as cash for daily transactions .

• Promoting Economic Activity: By providing loans, banks promote economic activity, investment, and employment generation .

Question 8: Compare the formal and informal sources of credit in terms of interest rate, regulation, and supervision.

Answer:

• Interest Rate: Formal sources charge lower interest rates; informal sources charge higher interest rates .

• Regulation: Formal sources are registered and regulated by the government (RBI); informal sources are not registered .

• Supervision: Formal sources are supervised by the RBI; informal sources are not supervised by any government authority .

• Collateral: Formal sources require collateral; informal sources may not require collateral but charge higher interest .

• Impact on Borrowers: Formal credit is affordable and promotes development; informal credit can lead to debt traps and exploitation .

Question 9: Explain the role of the Reserve Bank of India (RBI) in the credit market.

Answer:

• Supervision: RBI supervises and regulates the functioning of formal sources of loans, such as banks and cooperatives .

• Monetary Policy: RBI formulates and implements monetary policy to control the supply of money and credit in the economy .

• Issue of Currency: RBI has the sole authority to issue currency notes on behalf of the central government .

• Regulation of Banks: RBI issues guidelines for banks regarding lending, interest rates, and other financial activities .

• Financial Stability: RBI works to maintain financial stability and prevent crises in the banking sector .

Question 10: “Credit is a crucial element in economic development.” Justify the statement.

Answer:

• Agricultural Development: Credit helps farmers buy seeds, fertilizers, and equipment, increasing agricultural productivity .

• Industrial Growth: Credit enables entrepreneurs to start new businesses and expand existing ones, leading to industrial growth .

• Employment Generation: Investment in new ventures creates employment opportunities, reducing unemployment and poverty .

• Infrastructure Development: Credit is essential for building infrastructure like roads, bridges, and power plants, which supports economic development .

• Poverty Reduction: Access to cheap credit helps the poor start small businesses and improve their livelihoods, reducing poverty .

Question 11: How does money solve the problem of double coincidence of wants?

Answer:

• Double Coincidence of Wants: In a barter system, both parties must want what the other has, which is difficult to achieve .

• Money as a Medium of Exchange: Money acts as an intermediate in the exchange process, eliminating the need for a double coincidence of wants .

• Example: A farmer can sell his wheat for money and use that money to buy cloth, without needing to find a cloth merchant who wants wheat .

• Facilitates Trade: Money facilitates trade and specialization, allowing people to produce what they are good at and exchange for other goods .

• Economic Growth: By facilitating exchange, money promotes economic growth and development .

Question 12: Explain the importance of credit for the development of rural India.

Answer:

• Agricultural Development: Credit helps farmers buy seeds, fertilizers, and equipment, increasing agricultural productivity .

• Non-Farm Employment: Credit enables rural people to start small businesses and non-farm enterprises, creating employment opportunities .

• Poverty Reduction: Access to cheap credit helps the rural poor start small businesses and improve their livelihoods, reducing poverty .

• Financial Inclusion: Credit promotes financial inclusion by providing banking services to the unbanked in rural areas .

• Self-Help Groups: SHGs provide credit to rural women at reasonable interest rates, empowering them and promoting social development .

📝 How to Use These PYQs for CBSE Exam Preparation

At Dhingra Classes Nashik, we recommend the following strategies to maximize your score using these PYQs.

🎯 Study Tips

1. 📖 Read each question and try to answer before looking at the solution

2. ✏️ Practice writing answers within time limits (1 mark = 1 min, 3 marks = 5 min, 5 marks = 10 min)

3. 🗣️ Focus on repeated themes like formal vs informal credit, SHGs, and functions of money

4. 📝 Create flashcards for 1-mark questions

5. 💡 Relate concepts to real-life examples for better understanding

6. 🔄 Revise weekly to ensure long-term retention

7. 📋 Practice Assertion-Reason questions as they are frequently asked

8. ✅ Take mock tests using these PYQs

🏫 How Dhingra Classes Nashik Helps Class 10 CBSE Students Master Economics

At Dhingra Classes Nashik, we provide comprehensive coaching for Economics and all other subjects for Class 10 CBSE students. Our approach includes:

• 📚 Structured Lessons: Teaching concepts with clear explanations

• 💡 Real-Life Examples: Connecting economic concepts to daily life

• 📝 PYQ Analysis: Regular practice with previous year questions

• ✏️ Regular Tests: Weekly tests to ensure continuous revision

• 🎯 Doubt Clearing Sessions: Personalized attention to every student

• 📊 Progress Tracking: Regular updates to parents about student progress

• 🏆 Answer Writing Practice: Teaching how to structure answers for maximum marks

• 📞 Contact Dhingra Classes Nashik

• 📱 Phone: 98230 62106

• 📧 Email: dhingraclassesnsk@gmail.com

• 🌐 Website: www.dhingraclassesnashik.com

• 📍 Address: Plot No 3, XQ3G+H3M Deacon Homes, 301C, opp. Metro Zone, near Guru Govind Sing, Samarth Nagar, Dnyaneshwar Nagar, Pathardi Phata, Nashik, Maharashtra 422009

🏁 Conclusion

Mastering Money and Credit PYQs is essential for Class 10 CBSE students to score high marks in Economics board examinations. This comprehensive collection of 1-mark, 2-mark, 3-mark, and 5-mark questions covers all major themes including Money as a Medium of Exchange, Modern Forms of Money, Currency, Demand Deposits, Cheques, Banks, Credit, Terms of Credit, Interest Rate, Collateral, Formal Sector Loans, Informal Sector Loans, Self-Help Groups (SHGs), and Grameen Bank.

By regularly practicing these Previous Year Questions and using them in your board exam preparation, you can improve your understanding and score better. At Dhingra Classes Nashik, we are committed to helping Class 10 CBSE students excel in Economics and achieve academic success. Remember, Money and Credit is not just about memorizing definitions—it is about understanding how money and credit shape our daily lives and contribute to the nation’s economic development.