Exercise Solutions Available
Step-by-step answers for all textbook questions in this chapter
How to Use This Page
Read each question carefully, attempt it on your own, and then compare your answer with the solutions below. Focus on understanding the reasoning — not just memorising the answer.
Key Concepts (Quick Recap)
- Barter system was the exchange of goods for goods without money, limited by the double coincidence of wants.
- Money evolved from commodity money (cattle, grains) to metallic money (coins) to paper money (notes) to credit money (cheques, cards) to e-money (digital payments).
- Functions of money: Medium of exchange, measure of value, store of value, standard of deferred payment.
- Savings means keeping aside a portion of income for future use; it provides financial security.
- Investment means using saved money to buy assets or instruments that generate returns (interest, dividends, rent).
- Bank deposits: Savings account, Current account, Fixed deposit, Recurring deposit.
- Investment options: Post office savings, Public Provident Fund (PPF), National Savings Certificate (NSC), Mutual funds, Shares, Real estate, Gold.
- Reserve Bank of India (RBI): Central bank established in 1935; issues currency, regulates banks, controls credit supply.
- Inflation is the general increase in prices leading to a fall in the purchasing power of money.
- Insurance: Life insurance (protection against risk of death) and General insurance (protection against non-life risks like fire, theft, accident).
I. Choose the Correct Answer (MCQs)
1. The system of exchange of goods for goods is called:
- a) Money economy b) Barter system c) Market system d) Capitalism
The barter system involved exchanging goods for goods without the use of money.
2. Which of the following is a function of money?
- a) Medium of exchange b) Measure of value c) Store of value d) All the above
Money serves as a medium of exchange, measure of value, store of value, and standard of deferred payment.
3. The central bank of India is:
- a) State Bank of India b) Reserve Bank of India c) Indian Bank d) Bank of Baroda
The Reserve Bank of India (RBI) is the central bank, established in 1935.
4. Money deposited in a bank for a fixed period at a fixed rate of interest is called:
- a) Savings deposit b) Current deposit c) Recurring deposit d) Fixed deposit
In a fixed deposit, money is deposited for a fixed period at a predetermined rate of interest.
5. The scheme that provides income tax benefit under Section 80C is:
- a) Savings account b) Current account c) Public Provident Fund (PPF) d) Recurring deposit
PPF offers income tax deduction under Section 80C of the Income Tax Act.
6. Which type of deposit allows withdrawal at any time?
- a) Savings deposit b) Fixed deposit c) Recurring deposit d) None of the above
A savings deposit allows the depositor to withdraw money at any time, though there may be restrictions on the number of withdrawals.
7. Inflation means:
- a) Decrease in prices b) Stability in prices c) General increase in prices d) Decrease in money supply
Inflation is the sustained increase in the general price level, reducing the purchasing power of money.
8. The first bank in India was:
- a) Bank of Hindustan b) State Bank of India c) Bank of Bengal d) Punjab National Bank
Bank of Hindustan, established in 1770, was the first bank in India.
9. E-money refers to:
- a) Paper currency b) Metallic coins c) Electronic money / digital payments d) Barter goods
E-money (electronic money) includes digital payments through debit cards, credit cards, UPI, and mobile wallets.
10. Which of the following is NOT an investment option?
- a) Mutual funds b) Shares c) Current account d) Real estate
A current account is a type of bank deposit for business transactions; it does not generate investment returns.
II. Fill in the Blanks
1. The system of exchanging goods for goods is called the barter system. 2. The main difficulty of the barter system was the double coincidence of wants. 3. The Reserve Bank of India was established in 1935. 4. The symbol of the Indian Rupee (₹) was adopted in 2010. 5. Money that is kept aside for future use is called savings. 6. Using saved money to generate returns is called investment. 7. The central bank of India is the Reserve Bank of India (RBI). 8. Inflation reduces the purchasing power of money. 9. Life insurance provides financial protection against the risk of death. 10. The interest rate on a fixed deposit is higher than on a savings deposit.
III. True or False
IV. Match the Following
Set 1:
| No. | Column A | Answer |
|---|---|---|
| 1 | Barter system | c) Exchange of goods for goods |
| 2 | Fixed deposit | a) Money deposited for a fixed period |
| 3 | Savings deposit | d) Withdrawal at any time |
| 4 | Recurring deposit | b) Monthly deposit for a fixed period |
Set 2:
| No. | Column A | Answer |
|---|---|---|
| 1 | RBI | d) Central bank of India |
| 2 | PPF | a) Long-term savings with tax benefit |
| 3 | NSC | b) National Savings Certificate |
| 4 | Mutual fund | c) Pooled investment in securities |
V. Short Answer Questions
1. What is the barter system? What was its main drawback? The barter system is the exchange of goods for goods without the use of money. Its main drawback was the double coincidence of wants — both parties had to want what the other offered. This made exchanges difficult, as finding a person who wanted exactly what you had and had exactly what you wanted was challenging.
2. What are the functions of money? Money serves four main functions: 1. Medium of exchange: Money is accepted by all in exchange for goods and services. 2. Measure of value: Money serves as a common unit to measure and compare the value of different goods. 3. Store of value: Money can be saved and used later; it retains value over time. 4. Standard of deferred payment: Money enables buying and selling on credit; future payments can be made in money.
3. Define savings. Why is saving important? Savings means keeping aside a portion of one's income for future use. Saving is important because:
- It provides financial security during emergencies.
- It helps meet future needs like education, marriage, and health.
- Saved money can be invested to earn returns and grow wealth.
- It reduces dependence on borrowing.
4. What is inflation? Inflation is the sustained increase in the general price level of goods and services over time. When prices rise, the purchasing power of money decreases — the same amount of money buys fewer goods than before. Inflation affects the cost of living and can reduce the real value of savings.
VI. Distinguish the Following
Savings vs. Investment
| Feature | Savings | Investment |
|---|---|---|
| Meaning | Keeping aside a portion of income for future use | Using saved money to buy assets that generate returns |
| Risk | Low risk | Varies (low to high) |
| Returns | Small (interest on deposits) | Potentially higher (interest, dividends, rent, capital gains) |
| Liquidity | High (easily accessible) | Varies (some investments are locked in for a period) |
| Examples | Savings account, recurring deposit | Shares, mutual funds, real estate, PPF |
Life Insurance vs. General Insurance
| Feature | Life Insurance | General Insurance |
|---|---|---|
| Coverage | Risk of death | Non-life risks (fire, theft, accident, health) |
| Duration | Long-term (years) | Short-term (usually one year, renewable) |
| Examples | Term insurance, endowment policy | Fire insurance, motor insurance, health insurance |
| Surrender value | Policy can be surrendered for cash value | No surrender value |
VII. Detailed Answer Questions
Common Mistakes
1. Confusing savings and investment: Savings = keeping aside money; investment = using saved money to earn returns. 2. Confusing RBI with a commercial bank: RBI is the central bank that regulates other banks; it does not serve individual customers like a commercial bank. 3. Thinking inflation increases purchasing power: Inflation decreases purchasing power because prices rise. 4. Confusing fixed deposit and recurring deposit: FD = lump sum deposited once; RD = fixed amount deposited monthly. 5. Confusing savings deposit and current deposit: Savings deposit earns interest but restricts withdrawals; current deposit allows unlimited withdrawals but pays no interest. 6. Saying RBI issues all currency: RBI issues all notes; one-rupee notes and coins are issued by the Government of India. 7. Thinking barter system had no advantages: It worked well in simple societies but became impractical with growing trade complexity.
Exam Checklist
- [ ] Can define the barter system and explain its drawbacks
- [ ] Know the stages of evolution of money (commodity to e-money)
- [ ] Can list and explain the four functions of money
- [ ] Understand the difference between savings and investment
- [ ] Know the types of bank deposits (savings, current, FD, RD)
- [ ] Can list investment options (PPF, NSC, mutual funds, shares, real estate, gold)
- [ ] Understand what inflation is and its effect on purchasing power
- [ ] Know the functions of commercial banks
- [ ] Can explain the role and functions of RBI
- [ ] Can distinguish between life insurance and general insurance
Internal Links
- [Class 8 Social Science Guide](/class/8/social)
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- [Migration and Urbanization — Exercise Solutions](/class/8/social/solutions/migration-and-urbanization-exercise-solutions)