Chapter 3 - Money and Credit

Here is the Study Material for Economics in Chapter 3 - Money and Credit.

01. Define Barter System?
Barter refers to the direct exchange of goods and services. In this way, barter system refers to that system by which one commodity is exchanged for another without use of money.

02. Define Money.
Money may be anything chosen by common consent as a medium of exchange.

03. What are financial formal institutions?
Commercial Banks, Cooperatives and the regional rural banks are the formal institutions of credit.

04. What is meant by financial informal institutions?
The informal framework for deployment of credit and savings in India comprises the local moneylenders landlords, self-help groups, chit fund and private finance companies.

05. What is meant by Commercial Bank?
A Commercial Bank is an establishment for safe custody of money, which it pays out on customer's demand order or otherwise. In other words institutions accepting chequable deposits and guarenting loans are called commercial banks.

06. Describe money as a medium of exchange?
Money as a medium of exchange or medium of payments is used in the sale and purchase of goods and services. Anyone can get commodities in exchange of money. Money removed the problem of Barter. Money offer freedom of choice. Its owner can use it at the article, place, time and the way he likes.

07. What is credit?
Credit means giving money on loan to needy persons.

08. What is a cheque?
A cheque is a paper instructing the banks to pay a specific amount from the person's account to the person in whose name the cheque has been written.

09. Which households take loans from the formal sector institutions?
(i) Poor households
        (ii) Rich households

10. Modern form of money is linked with which system?
Banking System.


01. Explain the problems of the Barter system?
02. Explain the classification of money.
03. Describe the term 'landlord' as lender of money.
04. Discuss the term 'local moneylenders'.
05. Explain self-help groups (SHGs)
06. Explain the two functions of money.
07. Why are banks willing to lend to women organised in SHGs?
08. The modern currency is without any use of its own as a commodity. Why is it accepted as money?
09. (i) What is the share of formal sector in the total credit
      (ii) Suggest two measures for improving the share of formal sector in total credit.
      (iii) Why is moneylender still the largest single source of credit?
10. Name two formal and two informal sources of rural credit in India. State any two advantages of formal source of credit.


01. Discuss the role of money in an economy.
02. Explain the functions of Commercial Banks.


01. A payment made by account payee cheque means
(a) anyone can present the cheque and get payment from the bank
(b) only drawee can deposit the cheque and get credit in his bank account
(c) the cheque can be given by the drawee to third party who can get credit in his account.
(d) none of these

02. There is restriction of withdrawing money in a
(a) savings account
(b) current account
(c) fixed deposit account
(d) none of these

03. Interest payment will be higher on a house loan on account of
(a) high tenure of loan
(b) high rate of interest
(c) high risk of borrower profile
(d) all of these

04. More money chasing less goods and services means
(a) inflation
(b) deflation
(c) stagflation
(d) none of these

05. Formal sources of credit comes from
(a) landlord
(b) relatives or friends
(c) commercial banks
(d) businessmen

06. Which system has been replaced by 'Money as a medium of exchange'?
(a) Exchange System
(b) Commodity System
(c) Barter System
(d) Double coincidence of wants.

07. Which of the following does not come under modern forms of money?
(a) Currency
(b) Cheque Payments
(c) Demand deposits
(d) Loan Payments

08. Informal sources of credit does not include
(a) traders
(b) relatives and friends
(c) employers
(d) cooperatives

09. SHGs stands for
(a) Self House Groups
(b) Self Help Groups
(c) Society Help Groups
(d) Social Help Groups

10. In Sonpur village, everyone is not able to get credit from a bank because
(a) they don't want to take a bank loan
(b) banks demand collateral which everyone cannot provide
(c) interest rate on bank loans are high
(d) none of the above

01. (b) only drawee can deposit the cheque and get credit in his bank account
02. (c) fixed deposit account
03. (d) all of these
04. (a) inflation
05. (c) commercial banks
06. (c) Barter System
07. (d) Loan Payments
08. (a) traders
09. (b) Self Help Groups
10. (b) banks demand collateral which everyone cannot provide