With reference to the credit situation of 'Swapna', consider the following statements: 1. The bumper crop allowed for easy repayment of the loan. 2. Credit pushed her into a situation from which recovery was painful. 3. She was able to repay the loan without selling any assets. Which of the statements given above is/are correct?

Correct Option The correct option is 2 only. Explanation The question refers to a standard case study (Swapna) used in economic texts to illustrate the concept of a Debt Trap. In rural economies, credit acts as a double-edged sword: it can either increase earnings or, in cases of high risk and crop failure, push the borrower into a situation where recovery is difficult. Statement-wise Analysis - Statement 1 is Incorrect: In the referenced case study, the crop did not result in a bumper harvest. Instead, the crop was hit by pests and failed despite the use of pesticides. Consequently, repayment was not easy or possible from the farm earnings. - Statement 2 is Correct: Due to the failure of the crop, the borrower was unable to repay the loan, and the liability increased over time. This situation, where credit pushes the borrower into a condition from which recovery is painful, is the definition of a debt trap. - Statement 3 is Incorrect: Since the farm income was insufficient to cover the loan and accumulated interest, the borrower was forced to sell a portion of her land to settle the debt. Repayment was not achieved without the liquidation of assets. Key Takeaway Debt Trap: A situation where a borrower is unable to repay a loan because the return on investment (e.g., crop yield) fails, often forcing the sale of assets (collateral) to settle the dues, thereby worsening the borrower's economic condition.

With reference to the credit situation… - NCERT Class 10 Economics MCQ

NCERT Class 10 Economics — Chapter 3: Money and Credit

mcqmedium

With reference to the credit situation of 'Swapna', consider the following statements:

The bumper crop allowed for easy repayment of the loan.
Credit pushed her into a situation from which recovery was painful.
She was able to repay the loan without selling any assets.

Which of the statements given above is/are correct?

NCERT textbook question

From NCERT Understanding Economic Development · Page 44

Options

A1 only
B1, 2 and 3
C1 and 3 only
D2 only

Did you get this right?

Solution

Correct Option

The correct option is 2 only.

Explanation

The question refers to a standard case study (Swapna) used in economic texts to illustrate the concept of a Debt Trap. In rural economies, credit acts as a double-edged sword: it can either increase earnings or, in cases of high risk and crop failure, push the borrower into a situation where recovery is difficult.

Statement-wise Analysis

Statement 1 is Incorrect: In the referenced case study, the crop did not result in a bumper harvest. Instead, the crop was hit by pests and failed despite the use of pesticides. Consequently, repayment was not easy or possible from the farm earnings.
Statement 2 is Correct: Due to the failure of the crop, the borrower was unable to repay the loan, and the liability increased over time. This situation, where credit pushes the borrower into a condition from which recovery is painful, is the definition of a debt trap.
Statement 3 is Incorrect: Since the farm income was insufficient to cover the loan and accumulated interest, the borrower was forced to sell a portion of her land to settle the debt. Repayment was not achieved without the liquidation of assets.

Key Takeaway

Debt Trap: A situation where a borrower is unable to repay a loan because the return on investment (e.g., crop yield) fails, often forcing the sale of assets (collateral) to settle the dues, thereby worsening the borrower's economic condition.

Your note

More from Chapter 3: Money and Credit

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?

medium

What is the primary benefit of 'Self-Help Groups' for women?

easy

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?

medium

With reference to the 'Terms of Credit', consider the following statements: 1. Terms of credit refer only to the interest rate. 2. The mode of repayment is a component of the terms of credit. 3. Terms of credit vary substantially from one credit arrangement to another. Which of the statements given above is/are correct?

medium

Why is the supervision of the Reserve Bank of India necessary for formal sources of loans? Statements: 1. To ensure banks lend exclusively to large industries. 2. To ensure banks maintain the required cash balance. 3. To set the interest rates for informal moneylenders. Which of the statements given above is/are correct?

medium

Keep practising Chapter 3: Money and Credit

Work through every question from this NCERT chapter.

Browse all NCERT Class 10 Economics chapters