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Read the following… (Class 12 Economics SQP 2024-25, Q16)

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EconomicsCBSE Class 12 · Sample paper, session 2024-25 · 6 marks · Case-based

CBSE Class 12 Economics sample paper 2024-25: question 16

From the official CBSE sample question paper for 2024-25, section A, question 16, for 6 marks. Try it first; the hints and our step-by-step solution are below.

Q16 · 6 marks · Case-basedCompetency-basedMoney and Banking

Read the following text carefully:
As societies developed from hunters and gatherers, the material needs of human beings increased – to build a house, wear clothes, make weapons and implements etc. Since these needs could not be produced individually, people had to purchase them from others. These purchases, for example, were paid initially by barter – a leather skin cloak for a spear. As barter had its limits – how many cloaks for a spear – barter got standardized in terms of metals or cowrie shells. Now people knew the value of both the cloak and the spear in terms of bronze or cowrie shells. This was still barter, as both bronze and shells had intrinsic value (shells were desired for their beauty). This system evolved over time into metal currencies. Gold and silver coinage were the offshoot of this system where they had features of barter (both gold and silver had intrinsic value) as well as money (they were standardized representation of value).
In respect of money two facts emerge historically:
• Money has taken the form of either commodities (which have intrinsic value) or in terms of debt instruments.
• Money is usually issued by a sovereign (or a Central Bank as its representative).
In modern economies, currency is a form of money that is issued exclusively by some competent authority (Central Bank). It is a liability of the issuing Central Bank and an asset of the holding public. Currency is usually issued in paper (or polymer) form, but the form of currency is not its defining characteristic.
In the recent past, the Reserve Bank of India, issued Central Bank Digital Currency (CBDC). A CBDC is the currency issued by a central bank in a digital form. It serves all the purposes of a paper currency in a different form.
The introduction of CBDC has the potential to provide significant benefits, such as reduced dependency on cash, lower transaction costs, reduced settlement risk. Introduction of CBDC would possibly lead to a more robust, efficient, trusted, regulated payments option. There are associated risks such as cyber-attacks and technology preparedness, but they need to be carefully evaluated against the potential benefits.
Source: https://website.rbi.org.in/web/rbi/-/speeches-interview/central-bank-digital-currency-is-this-the-future-of-money-1111 (adapted and modified)
On the basis of the given text and common understanding, answer the following questions:

  1. (I)

    “Over the centuries, money has evolved in various forms.”
    In the light of the given statement, state and discuss briefly any two forms of money.

    3 marks
  2. (II)

    “Various economists have formed a strong opinion that, in the modern times digital currency (like CBDC) is quite essential. However, it comes with its own benefits and potential risks.”
    Do you agree with the given statement, giving valid arguments in support of your answer.

    3 marks

Source: official sample paper from cbseacademic.nic.in (PDF). See it in the full Sample paper 2024-25.

Hints

Open one hint at a time and try again before the next.

Hint 1

Trace money from barter to coins to notes.

Hint 2

Read the passage for CBDC benefits and risks.

Step-by-step solution

Each step shows the marks it earns, as an examiner would award them. Checked by an independent re-solve from the question paper.

  1. (I) Metallic money:

    ½ mark

  2. gold and silver coins, which had intrinsic value and were also a standardised representation of value, so they were used for transactions.

    1 mark

  3. (I) Paper currency:

    ½ mark

  4. notes issued in paper (or polymer) form by the central bank; they are a liability of the central bank and an asset of the public. (Also: commodity money, digital currency such as CBDC.)

    1 mark

  5. (II) Yes. A CBDC reduces dependence on cash, lowers transaction costs and settlement risk, and offers a more robust, efficient, trusted and regulated way to pay. But it carries risks such as cyber-attacks and the need for technological preparedness; these must be carefully weighed against the benefits.

    3 marks

Answer: (I) Metallic coins (intrinsic value) and paper currency (central bank liability). (II) Agree: CBDC cuts costs and risks but brings cyber and technology risks.

Where the marks are

  • Two forms named (½ each) and discussed (1 each)
  • Benefits and risks of CBDC (3)

Revise the chapter

  • Chapter: Money and Banking (notes, formulas, where marks are lost and every past question)
Practise this chapterBoard-style questions from Money and Banking, one at a time, marked against the answer key and marking points.Back to the full paperSample paper 2024-25: every question, by section.

The question is transcribed from the official paper; figures are described in words. The solution, hints and chapter tag are ours. Spotted an error? Write tosupport@questionbuddy.in.