UPSC Prelims 2018 · Question 46 of 99
UPSC Prelims 2018 question on Legal Tender
- ExamUPSC CSE
- Year2018
- PaperGeneral Studies Paper I
- SubjectIndian Economy
- TopicMoney Market
- DifficultyEasy
- TypeDirect
Which one of the following statements correctly describes the meaning of legal tender money?
Show answer
Answer: B. The money which a creditor is under compulsion to accept in settlement of his claims.
Analysis
Legal tender is any official medium of payment recognised by law that can be used to extinguish a public or private debt or meet a financial obligation, and a creditor is obliged to accept it in repayment. It can be issued only by the national body authorised to do so.
Option (c) is the closest distractor, since cheques, drafts and bills of exchange are genuinely money in the broad sense, but they are not legal tender, because a creditor may lawfully refuse them. Option (d) would have been right only if legal tender were confined to coins, whereas currency notes are legal tender too.
Statement by statement
Option (b) describes legal tender money correctly, so the answer is (b).
Source
NCERT Class XII, Introductory Macroeconomics, Chapter 3, page 38.
How to crack it
The defining test is compulsion of acceptance, not the physical form of the money. Once you hold that test, the distractors sort themselves: bank money fails because acceptance is voluntary, and metallic money fails because it is only part of the set. Whenever an economics definition question offers a form based option and a function based option, the function based one is usually the definition.