Q: How does money solve the problem of double coincidence of wants? Explain with an example of your own.

Money solves the problem of double coincidence of wants by acting as a medium of exchange. Double coincidence of wants implies a situation where two parties agree to sell and buy each other’s commodities., i.e., what one party desires to sell is exactly what the other party wishes to buy. Money does away with this tedious and complex situation by acting as a medium of exchange that can be used for one and all commodities. For example, if an ice-cream vendor wants a bicycle but the bicycle manufacturer wants clothes, and not ice-creams, then the vendor can use money to obtain a bicycle. He does need to adhere to the bicycle man’s needs because money acts as the common medium of exchange. Similarly, the bicycle manufacturer can then use the money to buy clothes.

Q: Explain with an example, how credit plays a vital and positive role for development.

Credit plays a crucial role in a country’s development. By sanctioning loans to developing industries and trade, banks provide them with the necessary aid for improvement.This leads to increase in the production, profits and employment. However, caution must be exercised in the case of loans from the informal sector which include high interest rates that may be more harmful than good.For this reason, it is important that the formal sector gives out more loans so that borrowers are not duped by moneylenders, and can ultimately contribute to national development.For example- A loan given to a fresh post-graduate for setting up a business might contribute to employment generation, infrastructure development in the near future.

Q: Which of the following is not a problem of barter system of exchange?

Barter system was a system of exchange where goods were exchanged for goods and there was no common medium of exchange in the economy. Barter system had many drawbacks like lack of double coincidence of wants, lack of a common unit of value, difficulty of future payments or contractual payments and difficulty of storage of value and transfer of value. Therefore, unemployment is not a problem related to barter system.

Question 1

Why is cheap and affordable credit important for the country's development? Explain any three reasons.

Accepted Answer

Cheap and affordable credit is crucial for the country's development due to the following factors: More lending would lead to higher incomes and encourage people to invest in agriculture, engage in business and set up small scale industries. Cheap credit means more income would be left with the borrower to reinvest rather than return as interest. This leads to acceleration of economic activity.Cheap credit would also allow weaker sections of society to enter formal sector of lending and rid them of exploitation at the hands of informal moneylenders. Thus, it may improve the economic condition of the poor and landless.

Question 2

How  does  money  solve  the  problem  of  double  coincidence  of  wants?  Explain  with an example of your own.

Accepted Answer

&#10;&#10;Money solves the problem of double coincidence of wants by&#10;acting as a medium of exchange. Double coincidence of wants implies a situation&#10;where two parties agree to sell and buy each other&#8217;s commodities., i.e., what&#10;one party desires to sell is exactly what the other party wishes to buy. Money&#10;does away with this tedious and complex situation by acting as a medium of&#10;exchange that can be used for one and all commodities. For example, if an&#10;ice-cream vendor wants a bicycle but the bicycle manufacturer wants clothes,&#10;and not ice-creams, then the vendor can use money to obtain a bicycle. He does&#10;need to adhere to the bicycle man&#8217;s needs because money acts as the common&#10;medium of exchange. Similarly, the bicycle manufacturer can then use the money&#10;to buy clothes.&#10;&#10;

Question 3

Analyse the role of credit for development.

Accepted Answer

Credit plays a vital role in economic growth and development.Credit availability at cheaper rates of interest encourages the business or firms to borrow more.Borrowing more money will facilitate the growth of business or increase in production in the economy.So, credit supply is the key factor for economic development.

Question 4

Why do we need to expand formal sources of credit in India?

Accepted Answer

We need formal sources of credit in order to reduce the dependence of farmers on informal sources of credit like money lenders.To reduce the higher risk associated with informal sources of credit because of fluctuating terms and conditions. To avail cheaper credit to farmers in rural areas.

Question 5

Why is modern currency accepted as a medium of exchange without any use of its own ? Find out the reason.

Accepted Answer

Modern currency is accepted as a medium of exchange without any use of its own because: 1) Modern currency is authorized by the government of a country. 2) In India, the Reserve Bank of India issues all currency notes on behalf of central Government. 3) No other individual or organization is allowed to issue currency. 4) The law legalises the use of rupee as a medium of payment that cannot be refused in settling transactions in India. 5) No individual in India can legally refuse a payment made in Rupees.

Question 6

In what ways does the Reserve Bank of India supervise the functioning of banks? Why  is  this  necessary?

Accepted Answer

&#10;&#10;The Reserve Bank of India monitors the amount of money that&#10;banks loan out, and also the amount of cash balance maintained by them. It also&#10;ensures that banks give out loans not just to profiteering businesses but also&#10;to small cultivators, small-scale industries and small borrowers. Periodically,&#10;banks are supposed to submit information to the RBI on the amounts lent to&#10;whom and at what rates of interest.&#10;&#10;This monitoring is necessary to ensure that equality is&#10;preserved in the financial sector, and that small industries are also given an&#10;outlet to grow. This is also done to make sure that banks do not loan out more&#10;money than they are supposed to, as this can lead to situations like the Great&#10;Depression of the 1930s in the USA, which greatly affected the world economy as&#10;well.&#10;&#10;

Question 7

Explain with an example, how credit plays a vital and positive role for development.

Accepted Answer

Credit plays a crucial role in a country&#8217;s development. By sanctioning loans to developing industries and trade, banks provide them with the necessary aid for improvement.This leads to increase in the production, profits and employment. However, caution must be exercised in the case of loans from the informal sector which include high interest rates that may be more harmful than good.For this reason, it is important that the formal sector gives out more loans so that borrowers are not duped by moneylenders, and can ultimately contribute to national development.For example- A loan given to a fresh post-graduate for setting up a business might contribute to employment generation, infrastructure development in the near future.

Question 8

What is a barter system? What are its drawbacks?

Accepted Answer

Barter System is a system of exchange in which one commodity is exchanged for another commodity. Drawbacks of Barter Systems:1. Lack of double coincidence of wants.2. Lack of a common measure of value.3. Indivisibility of certain goods.4. Difficulty in making deferred payments.5. Difficulty in storing value.

Question 9

Which of the following is not a formal  source of  credit?

Accepted Answer

Formal sources of credit are:Banks and Co-operative societies.Reserve bank of India will supervise the activities of the banks and co-operative societies in India.Employers do not fall under formal sources of credit lenders in our country.

Question 10

Which of the following is not a problem of barter system of exchange?

Accepted Answer

Barter system was a&#10;system of exchange where goods were exchanged for goods and there was no common&#10;medium of exchange in the economy. Barter system had many drawbacks like lack&#10;of double coincidence of wants, lack of a common unit of value, difficulty of&#10;future payments or contractual payments and difficulty of storage of value and&#10;transfer of value. Therefore, unemployment is not a problem related to barter system.