With reference to 'Demand Deposits', consider the following statements: 1. They are fixed deposits that cannot be withdrawn before maturity. 2. They share the essential features of money. 3. The facility of cheques against these deposits makes it possible to settle payments without the use of cash. Which of the statements given above is/are correct?

The correct option is 2 and 3 only. Explanation In the banking system, deposits are broadly classified into demand deposits and time deposits based on their withdrawal terms. Demand deposits constitute a crucial component of the money supply (M1) due to their high liquidity. - Statement 1 is Incorrect: Demand deposits are funds held in bank accounts that can be withdrawn at any time ("on demand") by the depositor without prior notice. Examples include savings accounts and current accounts. In contrast, fixed deposits (or time deposits) are funds deposited for a specific period and cannot be withdrawn before maturity without incurring a penalty. Therefore, demand deposits are distinct from fixed deposits. - Statement 2 is Correct: Demand deposits share the essential features of money because they are widely accepted as a means of payment. In modern economies, the balance in demand deposits is treated as money because it serves as a medium of exchange, allowing transactions to occur seamlessly alongside currency (cash). - Statement 3 is Correct: A defining characteristic of demand deposits is the facility to issue cheques. A cheque is a paper instruction to the bank to pay a specific amount from the person's account to the person in whose name the cheque has been issued. This mechanism allows for the settlement of payments without the direct use of physical cash, facilitating trade and commerce. Key Takeaway: Demand deposits are liquid assets withdrawable on demand and act as money in the modern economy because they facilitate non-cash payments through instruments like cheques.

NCERT Class 10 Economics — Chapter 3: Money and Credit

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With reference to 'Demand Deposits', consider the following statements:

They are fixed deposits that cannot be withdrawn before maturity.
They share the essential features of money.
The facility of cheques against these deposits makes it possible to settle payments without the use of cash.

Which of the statements given above is/are correct?

Official previous-year question

Verified 1 Aug 2026.

Options

A2 and 3 only
B1, 2 and 3
C2 only
D1 and 2 only

Did you get this right?

Solution

The correct option is 2 and 3 only.

Explanation

In the banking system, deposits are broadly classified into demand deposits and time deposits based on their withdrawal terms. Demand deposits constitute a crucial component of the money supply (M1) due to their high liquidity.

Statement 1 is Incorrect:
Demand deposits are funds held in bank accounts that can be withdrawn at any time ("on demand") by the depositor without prior notice. Examples include savings accounts and current accounts. In contrast, fixed deposits (or time deposits) are funds deposited for a specific period and cannot be withdrawn before maturity without incurring a penalty. Therefore, demand deposits are distinct from fixed deposits.
Statement 2 is Correct:
Demand deposits share the essential features of money because they are widely accepted as a means of payment. In modern economies, the balance in demand deposits is treated as money because it serves as a medium of exchange, allowing transactions to occur seamlessly alongside currency (cash).
Statement 3 is Correct:
A defining characteristic of demand deposits is the facility to issue cheques. A cheque is a paper instruction to the bank to pay a specific amount from the person's account to the person in whose name the cheque has been issued. This mechanism allows for the settlement of payments without the direct use of physical cash, facilitating trade and commerce.

Key Takeaway:

Demand deposits are liquid assets withdrawable on demand and act as money in the modern economy because they facilitate non-cash payments through instruments like cheques.

Your note

More from Chapter 3: Money and Credit

Consider the following statements regarding the impact of high cost of borrowing: 1. A larger part of the earnings of the borrowers is used to repay the loan. 2. The repayment amount is always less than the income of the borrower. 3. It may discourage people from starting enterprises due to the debt burden. Which of the statements given above is/are correct?

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Consider the following statements regarding the 'Cheque' facility: 1. The payee instructs the bank to withdraw money from the payer's account. 2. It allows for the direct settlement of payments without the use of cash. 3. Cheques are a form of currency issued by the RBI. Which of the statements given above is/are correct?

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With reference to the credit needs in rural areas, consider the following statements: 1. The main demand for credit is for crop production. 2. There is no time gap between buying inputs and selling the crop. 3. Repayment of the loan is crucially dependent on the income from farming. Which of the statements given above is/are correct?

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Consider the following statements regarding the 'Krishak Cooperative': 1. It does not accept deposits from its members. 2. It uses deposits as collateral to obtain a large loan from the bank. 3. It provides loans for various purposes including house construction. Which of the statements given above is/are correct?

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Consider the following statements regarding the supervision of credit activities in India: 1. The World Bank supervises the functioning of formal sources of loans. 2. There is no organisation that supervises the credit activities of lenders in the informal sector. 3. Banks are not required to share any lending information with the RBI. Which of the statements given above is/are correct?

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The correct option is 2 and 3 only.

Explanation

Statement 1 is Incorrect:
Demand deposits are funds held in bank accounts that can be withdrawn at any time ("on demand") by the depositor without prior notice. Examples include savings accounts and current accounts. In contrast, fixed deposits (or time deposits) are funds deposited for a specific period and cannot be withdrawn before maturity without incurring a penalty. Therefore, demand deposits are distinct from fixed deposits.
Statement 2 is Correct:
Demand deposits share the essential features of money because they are widely accepted as a means of payment. In modern economies, the balance in demand deposits is treated as money because it serves as a medium of exchange, allowing transactions to occur seamlessly alongside currency (cash).
Statement 3 is Correct:
A defining characteristic of demand deposits is the facility to issue cheques. A cheque is a paper instruction to the bank to pay a specific amount from the person's account to the person in whose name the cheque has been issued. This mechanism allows for the settlement of payments without the direct use of physical cash, facilitating trade and commerce.

Key Takeaway:

Demand deposits are liquid assets withdrawable on demand and act as money in the modern economy because they facilitate non-cash payments through instruments like cheques.