Q1. [1] medium thorough-understanding
A fisherman takes a loan at the start of the fishing season to buy nets and equipment, promising to repay after the season ends. During the season, an unexpected storm destroys his boat and catch. Which of the following best explains what will likely happen next?
(A) The loan will be repaid easily since the fisherman can take another loan to cover the loss.
(B) The credit will have played a positive role because the fisherman had a productive intent.
(C) The fisherman may fall into a debt trap, as the loss makes repayment impossible and future loans add to the burden.
(D) The lender will waive the loan since the loss was due to a natural cause.
- A The loan will be repaid easily since the fisherman can take another loan to cover the loss.
- B The credit will have played a positive role because the fisherman had a productive intent.
- C The fisherman may fall into a debt trap, as the loss makes repayment impossible and future loans add to the burden.
- D The lender will waive the loan since the loss was due to a natural cause.
Generated by claude-sonnet-4-6 · 2026-06-26 13:24 · grounding rag
Model Answer
(C) The fisherman may fall into a debt trap, as the loss makes repayment impossible and future loans add to the burden.
Explanation
The passage describes Swapna's situation, where crop failure made loan repayment impossible, forcing her to take fresh loans — a classic debt trap. Option A is wrong (a new loan adds burden, not relief). Option B is wrong (positive intent does not guarantee positive outcome). Option D is incorrect as lenders are not obligated to waive loans due to natural causes. The textbook explicitly states: "Whether credit would be useful or not depends on the risks in the situation."
Source: Money and Credit, Chapter 3 — Two Different Credit Situations (Swapna's Problem)