Social Science : Economics : Chapter 3 : Money and Credit
I. Choose the correct answer
1. Certain metals like ………… (gold/iron) were used as a medium of exchange in ancient times.
Ans : Gold
2. The Head Quarters of the RBI is at ………… (Chennai/Mumbai).
Ans : Mumbai
3. International trade is carried on in terms of ………… (US Dollars/Pounds).
Ans : US Dollars
4. The currency of Japan is ………… (Yen/Yuan)
Ans : Yen
I. Fill In The Blanks
1. ………… System can be considered as the first form of trade.
Ans : Barter
2. Money supply is divided into …………
Ans : Four
3. The first printing press of the RBI was started at …………
Ans : Nasik, Madhya Pradesh
4. ………… act as a regulator of the circulation of money.
Ans : Reserve Bank
5. The thesis about money by B.R. Ambedkar is …………
Ans : The problem of the rupee – its origin and solution
III Match the following
|1. US Dollar||Automatic Teller Machine|
|2. Currency in circulation||Substitute of money|
|3. ATM||Universally accepted currency|
|4. Salt||Saudi Arabia|
Ans : 1 – C, 2 – E, 3 – A, 4 – B, 5 – D
IV. Give short answers
1. Why was money invented?
- In the civilizations, barter system (exchange of goods for another one) was practiced.
- In due of time, measuring the quantity and value of goods exchanged were found very difficult.
- To solve these issues, money was invented.
- Initially, metals were used as the first form of money. Later, paper currencies were introduced.
2. What is ancient money?
- In the ancient period, the rulers fixed a common item with a standard value for the effective exchange of goods.
- It was usually in the form of some metals.
- Gold, silver and copper were the metals used first.
- These metal coins were called as ancient currency
3. What were the items used as barter during olden days?
- Barter system was followed in the ancient period to exchange the goods.
- The articles which were exchanged through barter system can be termed as the first form of trade.
- Leather, beads, shells, tobacco, salt, corn and even slaves were the items used as barter during olden days.
4. What is spice route? Why was it called so?
- Pepper, spices, pearls, gems, rubies and muslin clothes were exported from the eastern sea of Tamil Nadu.
- Pepper and spices took a major share of the exports. Thus, this route was called the spice route.
5. What is natural money?
- The metals such as silver and gold gained importance gradually all over the world.
- So, these metals were used as standard value in the exchange of goods.
- This was called as natural money.
6. Why were coins of low value printed in large quantities?
- There were insufficient reserves of gold and silver.
- Mines also had a limited reserve of these metals.
- An alternative was found and coins were made using metals with lesser value.
- These were used to buy and sell goods of lesser value.
- So, coins of low value were printed in large quantities.
7. What is meant by foreign exchange?
- Currency is the medium of exchange in a country.
- The Indian currency is called the Indian Rupee (INR).
- In a country, the foreign currency is called foreign exchange
V. Answer in detail
1. Explain how money is transacted in the digital world.
Money transaction in the digital world:
- One has to visit the bank and fill in a challan or produce a cheque to withdraw money from his account. Now this practice is gradually vanishing.
- Instead, one can easily withdraw the necessary amount from an Automated Teller Machine (ATM) with the help of an ATM debit card at any time.
- A person can deposit money in their account without visiting the branch. Similarly, credit cards are also available, through which things are bought on credit and the amount can be paid later.
- Now a days, instead of using cheques or Demand Drafts (DDs), online transactions through net banking are carried out. Through this, money is transacted to anyone who lives anywhere across the globe.
- Technology has advanced so much that even mobile banking is widely used nowadays.
2. Explain in detail about the role of RBI in the country.
Role of the RBI in the country:
- The government has the responsibility to regulate money supply and oversee the monetary policy.
- Hoarding of money must be avoided at all costs in a country’s economy. Only then money can be saved in banks.
- A major portion of the savings in banks is used for the development of industries, economic growth and various development schemes for the welfare of the poor.
- All the major and important banks were nationalised (1969) in India. The Reserve Bank of India (RBI) regulates the circulation of currency in India.
- RBI was nationalized in 1949. The printed currency around 85%is let for circulation.
- According to the statistics available as on August 2018, currency worth of 19 lakh crore are in circulation.
3. Write in detail about the various functions of money.
The important functions of money are –
- Medium of Exchange
- Unit of Account
- A store of Value
Medium of Exchange:
Money should be accepted liberally in exchange of goods and services in a country.
Unit of Account:
Money should be the common, standard unit of calculating a country’s total consumer goods, products, services etc. Money is used to measure and record financial transactions of a country.
A Store of Value:
Money is used as a store of purchasing power. It can be used to finance future payments.
4. What are the divisions of money supply?
Money supply is divided into four:
- M1 = Currency held with the public + cash Reserves in commercial and Co-operative banks + cash reserves in the RBI.
- M2 = M1 + Money saved in Post office and bank savings Accounts
- M3 = M1 + Time Deposits in Commercial and co-operative banks
- M4 = M1 + Post office savings Money
VI. Write the correct statement.
1. 1) The barter system flourished wherever civilizations thrived.
2) This was the initial form of trade.
- 1 is correct; 2 is wrong
- Both 1 and 2 are correct
- Both 1 and 2 are wrong
- 1 is wrong; 2 is correct
Ans : ii) Both 1 and 2 are correct
2. 1) Most of the international trade transactions are carried out in US dollars.
2) No other country except the US carries out trade in the world.
- Both the statements are correct
- Both the statements are wrong
- 1 is correct; 2 is wrong
- 1 is wrong; 2 is correct
Ans : iii) 1 is correct; 2 is wrong