Name: Exploring Money as a Medium of Exchange in Our World
Uploaded: 2019-07-19
Duration: 4 min 39 s
Description: We do different daily transactions. Let’s learn how money is a part of these transactions, how things are different than before with money, and how it is a medium of exchange.

Question

What is meant by the debt trap? Illustrate how it puts the borrower into a situation from which recovery can be very painful.

Accepted Answer

Debt-trap refers to a situation when a borrower, particularly in a rural area, fails to repay the loan due to the failure of the crop and is unable to repay the loan and is left worse off situation.

For the small and marginal farmers, the most popular source of credit is the local moneylender. The rate of interest charged by moneylenders is high. If the crop production is poor, the farmer may at best be able to pay only the interest at harvest time, and the farmer has to take more loans, his liabilities increase further. He is rarely able to get out of the debt and get into a debt trap. The farmer may be forced to sell off part of his landholding to pay off the loans.

What is meant by the debt trap? Illustrate how it puts the borrower into a situation from which recovery can be very painful.

Important Questions on Money and Credit

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