Notes For All Chapters Economics Class 10 CBSE
1. Introduction
- Money and credit play a central role in modern economic life.
- Every day we make many transactions involving money — buying goods, paying for services, or promising to pay later.
- Money makes transactions easier and more efficient compared to barter.
2. Money as a Medium of Exchange
Barter System
- Earlier, goods were exchanged directly for other goods — this was known as the barter system.
- The barter system had a major drawback called double coincidence of wants:
- Both parties had to want exactly what the other offered.
- Example: A shoe maker wanting wheat must find a wheat farmer who also wants shoes.
Advantages of Money
- Money eliminates the double coincidence of wants.
- It acts as a medium of exchange, making trade simpler.
- A person can sell goods or services for money and use that money to buy what they need.
3. Modern Forms of Money
(a) Currency
- Modern money includes paper notes and coins.
- Unlike earlier times (when gold, silver, or cattle were used), modern money has no intrinsic value.
- It is accepted because it is authorized by the government.
- In India:
- Reserve Bank of India (RBI) issues currency on behalf of the Central Government.
- The rupee is a legal tender — no one can refuse it for payments.
(b) Deposits with Banks
- People deposit their money in banks for safety and interest.
- Deposits can be withdrawn whenever needed — these are called demand deposits.
- Deposits also act as money because they can be used for payments.
(c) Cheques
- A cheque is a paper instructing the bank to pay a specific amount from one account to another.
- Payments can be made without using cash.
- Demand deposits and cheques together make up modern money.
4. Loan Activities of Banks
How Banks Work
- Banks keep only a small portion of deposits as cash reserve (around 15%).
- The rest is used to give loans to people.
- Banks act as intermediaries between:
- Depositors (who save money)
- Borrowers (who need money)
- Banks charge a higher interest rate on loans and pay a lower rate on deposits.
- The difference is the bank’s main income.
5. Credit: Meaning and Importance
Meaning of Credit
- Credit (loan) is an agreement in which the lender provides money, goods, or services in return for a promise of future payment.
- Credit plays a crucial role in economic activities.
Two Types of Credit Situations
1. Positive Impact (Example: Salim the Shoemaker)
- Salim took credit to buy materials and hire workers.
- He completed production, earned profit, and repaid the loan.
- Credit helped him expand production and increase income.
2. Negative Impact (Example: Swapna the Farmer)
- Swapna borrowed from a moneylender for farming.
- Her crop failed due to pests, and she couldn’t repay.
- Debt increased, and she had to sell her land.
- This is a debt trap — when a borrower becomes worse off due to credit.
6. Terms of Credit
Every loan has certain terms:
- Interest rate – the extra amount to be paid along with the loan.
- Collateral – an asset offered as security against the loan (e.g., land, vehicle, gold).
- Documentation – paperwork showing identity, income, property, etc.
- Mode of repayment – monthly, yearly, etc.
Example: Megha took a house loan of ₹5,00,000 at 12% interest for 10 years. Her house papers were kept as collateral.
7. Variety of Credit Arrangements
Different people in a village (like Sonpur) have different sources and terms of credit:
- Shyamal (small farmer) → borrowed from a trader at 3% per month.
- Arun (medium farmer) → got a bank loan at 8.5% per year.
- Rama (landless worker) → borrowed from her employer at 5% per month.
Observation:
- Interest rates are much lower in banks and cooperatives.
- Poor and landless people depend on private moneylenders who charge high rates.
- Richer farmers and traders can access bank loans more easily.
8. Loans from Cooperatives
- Cooperatives are organizations where members pool their money and lend to each other.
- Example: Krishak Cooperative provides loans for farming, equipment, housing, etc.
- Cooperatives get funds from banks and lend to members at reasonable interest.
- They are an important source of cheap credit in rural areas.
9. Formal and Informal Sources of Credit
Formal Sources
- Banks and Cooperative societies
- Regulated by the Reserve Bank of India (RBI)
- Charge lower interest rates
- Require collateral and documents
- Must provide loans to small farmers, industries, and weaker sections
Informal Sources
- Moneylenders, traders, employers, friends, relatives
- Not regulated by any authority
- Charge very high interest
- May use unfair methods to recover loans
Graph Data (2012)
- Rural households get:
- 50% loans from formal sector (banks, cooperatives)
- 50% from informal sources (moneylenders, traders)
- Poor people depend more on informal credit.
- Richer people get most of their loans from formal sources.
10. Need for Cheap and Formal Credit
- High interest rates make borrowers poorer.
- Cheap and easy credit helps in:
- Increasing income
- Starting small businesses
- Reducing poverty
- Therefore, banks and cooperatives should increase lending in rural areas.
11. Self-Help Groups (SHGs)
What are SHGs?
- Small groups (usually 15–20 women) who save money together.
- Members contribute small savings regularly.
- They give small loans to each other at low interest.
- After regular savings, SHGs become eligible for bank loans.
Benefits of SHGs
- Help women become financially self-reliant.
- Provide credit without collateral.
- Promote self-employment (buying seeds, raw materials, cattle, etc.).
- Encourage collective decision-making and social discussion on issues like health and domestic violence.
- Reduce dependence on moneylenders.
12. Grameen Bank of Bangladesh
- Founded by Prof. Muhammad Yunus in the 1970s.
- Provides small loans (microcredit) to poor women.
- Over 9 million members in more than 81,000 villages.
- Helped poor women start small businesses.
- Proved that the poor can be reliable borrowers.
- Muhammad Yunus won the Nobel Peace Prize (2006).
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