Q1. [1] medium thorough-understanding
Which of the following best explains why cheap and affordable credit is described as crucial for a country's development?
(A) It increases the government's tax revenue by encouraging more commercial activity among large corporations.
(B) It allows borrowers — including small farmers, traders and entrepreneurs — to invest, raise incomes and repay loans without falling into debt traps.
(C) It reduces the need for collateral, making banks more profitable and financially secure.
(D) It enables the Reserve Bank of India to print less currency, keeping inflation under control.
- A It increases the profits of banks, allowing them to pay higher interest to depositors.
- B It allows borrowers — including small farmers, traders and entrepreneurs — to invest, raise incomes and repay without falling into debt traps.
- C It reduces the need for the Reserve Bank of India to supervise informal lenders.
- D It eliminates the double coincidence of wants problem that exists in a barter economy.
Generated by claude-sonnet-4-6 · 2026-06-26 13:26 · grounding rag
Model Answer
(B) It allows borrowers — including small farmers, traders and entrepreneurs — to invest, raise incomes and repay without falling into debt traps.
Explanation
The textbook explicitly states: "Cheap and affordable credit is crucial for the country's development" because it enables small cultivators, traders, and entrepreneurs to borrow at low cost, invest productively, earn higher incomes, and repay loans — avoiding the debt trap caused by high-interest informal credit. Option B directly reflects this reasoning. The other options are either incorrect or not supported by the chapter.