What are the functions of money?

Money serves four main functions: (1) Medium of Exchange — eliminates the need for double coincidence of wants; widely accepted for buying/selling goods and services; (2) Measure of Value — provides a common unit for pricing all goods (rupees, dollars); (3) Store of Value — money can be saved for future use; (4) Standard of Deferred Payment — loans and future payments are expressed in monetary units. Modern money is 'legal tender' — the government guarantees its acceptance.

What are Self-Help Groups (SHGs) and how do they help the poor?

SHGs are small groups (usually 15–20 women) from the same village/community who save regularly together (even small amounts like ₹25–100 per week). These savings are pooled and members can borrow from the group at low interest. After 1–2 years of good performance, the SHG can get a bank loan. Benefits: (1) Provides cheap credit without collateral; (2) Frees poor from high-interest moneylenders; (3) Promotes savings habit; (4) Empowers women through economic independence and collective decision-making.

A debt trap is a vicious cycle where a borrower (usually poor) takes a loan at high interest, cannot repay it from earnings, is forced to take more loans to repay the first, and gradually sinks deeper into debt. Example: A farmer borrows ₹10,000 from a moneylender at 36% interest for seeds. Crop fails. Debt becomes ₹13,600. Takes another loan to pay back. Next year the debt compounds further. Eventually, the farmer may lose land, home, or become bonded labour. This is why accessible formal credit at low interest rates is crucial for the poor.

Money, Credit, and Banking

Money and Credit • Class 10 Social Science • NCERT • CBSE

Money is any medium of exchange that is widely accepted. It overcomes the limitations of barter. Credit (loans) can be beneficial (for production) or debt traps (for the poor). Formal credit includes banks (regulated by RBI); informal credit includes moneylenders, traders (unregulated, often exploitative). Self-Help Groups (SHGs) provide microfinance.

Frequently Asked Questions

What are the functions of money?: Money serves four main functions: (1) Medium of Exchange — eliminates the need for double coincidence of wants; widely accepted for buying/selling goods and services; (2) Measure of Value — provides a common unit for pricing all goods (rupees, dollars); (3) Store of Value — money can be saved for future use; (4) Standard of Deferred Payment — loans and future payments are expressed in monetary units. Modern money is 'legal tender' — the government guarantees its acceptance.
What are Self-Help Groups (SHGs) and how do they help the poor?: SHGs are small groups (usually 15–20 women) from the same village/community who save regularly together (even small amounts like ₹25–100 per week). These savings are pooled and members can borrow from the group at low interest. After 1–2 years of good performance, the SHG can get a bank loan. Benefits: (1) Provides cheap credit without collateral; (2) Frees poor from high-interest moneylenders; (3) Promotes savings habit; (4) Empowers women through economic independence and collective decision-making.
What is a debt trap?: A debt trap is a vicious cycle where a borrower (usually poor) takes a loan at high interest, cannot repay it from earnings, is forced to take more loans to repay the first, and gradually sinks deeper into debt. Example: A farmer borrows ₹10,000 from a moneylender at 36% interest for seeds. Crop fails. Debt becomes ₹13,600. Takes another loan to pay back. Next year the debt compounds further. Eventually, the farmer may lose land, home, or become bonded labour. This is why accessible formal credit at low interest rates is crucial for the poor.

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