🏦 Class 10 Economics Chapter 3 – Money and Credit

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In this post, we’ll break down the essential concepts of Chapter 3: Money and Credit, where you’ll learn how money evolved, how banks work, and the role of credit in the economy.

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💰 I. What is Money?

Money is anything that is widely accepted as a medium of exchange.
It removes the need for barter (exchange of goods without money), which had many limitations.

🔄 Barter System Problems:

• Double coincidence of wants (both parties need to want what the other has)

• Lack of standard value

✅ Money solves this by acting as:

• Medium of exchange

• Store of value

• Unit of account

• Standard of deferred payment

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🪙 II. Evolution of Money

1. Barter System

2. Commodity Money (grains, cattle)

3. Metallic Money (coins)

4. Paper Currency

5. Digital Money (UPI, net banking)

In India, only RBI (Reserve Bank of India) can issue currency.

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🏦 III. Modern Forms of Money

1. Currency (Cash)

• Notes and coins

• Guaranteed by the government of India and issued by RBI

2. Deposits in Banks

• People deposit money in banks for safety and interest

• These are demand deposits because people can withdraw anytime

💳 Cheque: Paper instruction to bank to pay a specific amount from your account
📱 Digital Transfers: NEFT, IMPS, UPI – new-age money

✅ Demand deposits are also money, as they can be used to make payments.

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💼 IV. How Do Banks Work?

• Banks accept deposits and give interest to depositors

• Use a major portion of deposits to give loans to people and businesses

• Charge higher interest on loans than they give on deposits – this is how banks earn

Example:

• Deposit Interest = 3%

• Loan Interest = 10%
  ➡️ Bank’s profit = 7%

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💸 V. Credit – What is It?

Credit is an agreement where a lender provides money or goods and the borrower agrees to repay later.

Credit = Loan

Can be taken from:

• Banks

• Cooperatives

• Moneylenders

• Friends/relatives

• Traders

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📊 VI. Terms of Credit

Every loan has:

✅ Better terms = Easier, safer loans

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⚖️ VII. Two Sides of Credit

A. Positive Effect (Helpful Credit)

• Borrower uses loan for productive purpose

• Earns profit, repays easily

• Example: Farmer takes loan to buy seeds, gets good harvest

B. Negative Effect (Debt Trap)

• Loan taken in emergency or due to crop failure

• Cannot repay → more borrowing → debt trap

• Example: Farmer with crop loss and high interest loan from moneylender

✅ Credit is useful only when used wisely

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🌾 VIII. Formal and Informal Sources of Credit

📌 RBI supervises formal sources and sets guidelines like minimum balance, loan norms, etc.

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⚠️ IX. Challenges in Rural Credit

• Rural poor often lack collateral

• Cannot access banks easily

• Depend on informal sources with high interest rates

• Leads to exploitation and poverty cycle

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🎯 X. Need for Credit Reforms

• Expand financial inclusion (more people in banking system)

• Promote Self Help Groups (SHGs) and Microfinance

• Increase number of rural banks and cooperatives

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📚 XI. Key Terms

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📌 Summary Table