# Assertion Reason Economics Chapter 3 Money And Credit Understanding Economic Development

Questions of Assertion Reason of Economics Chapter 3 Money And Credit Social Science CBSE Class 10 are very simple to understand as this chapter deals with various Money And Credit. To solve assertion reason type questions of Economics of Social science, deeper understanding of concept about Money And Credit is required. In order to help the student in solving Assertion Reason type of questions, detailed process is explained.

How to solve Assertion Reason Type Questions?
In Assertion-Reason type of question, two statements are given, first is Assertion and second is called Reason. Student must have to think critically about both the statements in Assertion Reason Questions, since it combines multiple choice questions and true/false type of questions which requires a higher level of understanding.

How many types are there of Assertion Reason Type Questions?
Assertion-Reason type of questions can be asked either with four MCQ options or with five MCQ options. First four options are same in both the cases only one more options is being provided i.e. last one. One extra option increases the difficulty level of the questions.

In assertion reason type of questions, all 4 or 5 options are same for each question, which are as:

(a) Both assertion (A) and reason (R) are true and reason (R) is the correct explanation of assertion (A).
(b) Both assertion (A) and reason (R) are true but reason (R) is not the correct explanation of assertion (A).
(c) Assertion (A) is true but reason (R) is false.
(d) Assertion (A) is false but reason (R) is true.
(e) Both Assertion and Reason are false.

Then a question haunts in every student’s mind, which option is correct and when?
This can be understood clearly with the following table:

Assertion (A)Reason (R)MCQ Options (Fixed for all questions)
If TrueTrue(a) Both assertion (A) and reason (R) are true and reason (R) is the correct explanation of assertion (A).
If TrueTrue(b) Both assertion (A) and reason (R) are true but reason (R) is not the correct explanation of assertion (A).
If TrueFalse(c) Assertion (A) is true but reason (R) is false.
If FalseTrue(d) Assertion (A) is false but reason (R) is true.
If FalseFalse(e) Both Assertion and Reason are false.

Now, lets practice some Assertion Reason Questions of Understanding Economic Development – Economics : Chapter 3 Money And Credit.

For question given below, two statements are given- one labelled Assertion (A) and the other labelled Reason (R). Select the correct answer to these questions from the codes (a), (b), (c) and (d) as given below:

(a) Both A and R are true and R is correct explanation of the assertion.
(b) Both A and R are true but R is not the correct explanation of the assertion.
(c) A is true but R is false.
(d) A is false but R is true.

Question.1.
Assertion (A) : The modern currency is used as a medium of exchange; however, it does not have a use of its own.
Reason (R) : Modem currency is easy to carry.

Ans.1. (b)
The modern currency is used as a medium of exchange because it is accepted and authorized as a medium of exchange by a country’s government.

Question.2.
Assertion (A) : In India, no individual can refuse to accept a payment made in rupees.
Reason (R) : Rupee is the legal tender in India.

Ans.2. (a)
The law legalizes the use of rupee as a medium of payment that cannot be refused in settling transactions in India.

Question.3.
Assertion (A) : The facility of demand deposits makes it possible to settle payments without the use of cash.
Reason (R) : Demand deposits are paper orders which make it possible to transfer money from one person’s account to another person’s account.

Ans.3. (d)
The facility of cheques against demand deposits makes it possible to directly settle payments without the use of cash. Since demand deposits are accepted widely as a means of payment, along with currency, they constitute money in the modern economy.

Question.4.
Assertion (A) : Banks keep only a small proportion of their deposits as cash with themselves.
Reason (R) : Banks in India these days hold about 15 per cent of their deposits as cash.

Ans.4. (b)
Banks keep only a small proportion of their deposits as cash with themselves because they use the major portion of the deposits to extend loans as there is a huge demand for loans for various economic activities.

Question.5.
Assertion (A) : Banks charge a higher interest rate on loans than what they offer on deposits.
Reason (R) : The difference between what is charged from borrowers and what is paid to depositors is their main source of income.

Ans.5. (a)
Banks in India hold about 15 per cent of their deposits as cash as the remaining deposits are used to provide loans. The interest charged on loans is higher than the interest paid on deposits and the difference between the two interest rates is the major source of income for banks.

Question.6.
Assertion (A) : Rohan took credit in the form of advance payment from a buyer and he delivered the goods to the buyer on time and also earned profit. The credit made Rohan better off in this situation.
Reason (R) : Credit can never push a person into a debt trap.

Ans.6. (c)
The credit made Rohan better off in this situation, however, Rohan would have been worse off if he had failed to deliver the goods on time or he had made a loss in the production process. The latter two situations may have caused Rohan to fall in a debt trap.

Question.7.
Assertion (A) : Credit would be useful or not depends on the risk involved in a situation.
Reason (R) : The chance of benefitting from credit is highest in agriculture sector.

Ans.7. (c)
Whether credit would be useful or not depends on the risks in the situation and whether there is some support, in case of loss.

Question.8.
Assertion (A) : Collateral is an asset that the borrower owns (such as land, building, vehicle, livestock, deposits with banks) and uses this as a guarantee to a lender until the loan is repaid.
Reason (R) : Collateral is given as the lender can sell the collateral to recover the loan amount if the borrower fails to repay the loan.

Ans.8. (a)
Property such as land titles, deposits with banks, livestock are some common examples of collateral used for borrowing. In case of failure of repayment of loan, the lender can sell the collateral to recover the loan amount.

Question.9.
Assertion (A) : The terms of deposit are same for all credit arrangements.
Reason (R) : Credit arrangements are very complex process so to remove the complexities same terms of deposits are used.

Ans.9. (d)
The terms of credit vary substantially from one credit arrangement to another. They may vary depending on the nature of the lender and the borrower.

Question.10.
Assertion (A) : The Reserve Bank of India supervises the functioning of formal sources of loans.
Reason (R) : The RBI sees that the banks give loans not just to profit-making businesses and traders but also to small cultivators, small scale industries, to small borrowers etc.

Ans.10. (b)
The RBI oversees the functioning of commercial banks. The reason statement substantiates the assertion but it is not the explanation for the assertion.