Which one of the following statements correctly describes the meaning of legal tender money?
Answer & explanation
Answer: (b) The money which a creditor is under compulsion to accept in settlement of his claims
Legal tender is money that the law says must be accepted in settlement of a debt, so a creditor cannot refuse it. Currency notes and coins issued by the state are legal tender.
- ✓ (b) Notes and coins are legal tender because no citizen can refuse them when settling any transaction. The creditor has to accept them.
- ✗ (c) Cheques and drafts are bank money. Anyone can refuse them as a mode of payment, so demand deposits are not legal tender.
- ✗ (d) Legal tender is defined by the compulsion to accept, not by the metal. Paper currency notes are legal tender too.
- ✗ (a) Nothing in the idea of legal tender concerns paying court fees. It only concerns settling a debt.
Remember · Legal tender = money a creditor cannot refuse (notes and coins). Cheques and other demand deposits are not legal tender.
📘 Read it in NCERT: Class 12 Introductory Macroeconomics, Ch 3 (practise this chapter) · Class 12 Introductory Macroeconomics, Ch 3 (practise this chapter)
Sources
- NCERT Class 12 · Introductory Macroeconomics, Chapter 3 “They are also called legal tenders as they cannot be refused by any citizen of the country for settlement of any kind of transaction.”
- NCERT Class 12 · Introductory Macroeconomics, Chapter 3 “Cheques drawn on savings or current accounts, however, can be refused by anyone as a mode of payment. Hence, demand deposits are not legal tenders.”
Question and answer: UPSC's official GS Paper I (2018, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). ·