A debt trap pushes the borrower in a situation from which recovery is quite difficult. Examine this statement.
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Model Answer
A debt trap occurs when a borrower is unable to repay a loan and is forced to take fresh loans to cover old ones. For example, Swapna's crop failed, making repayment impossible. Her debt grew each year and she had to sell part of her land to repay it, leaving her worse off than before.
Source: Chapter 3 — Two Different Credit Situations
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Explanation
- The question is directly based on Swapna's example from the textbook. Always cite a specific example to support the statement.
- Key points examiners look for: (1) inability to repay leading to fresh loans, (2) debt growing over time, (3) asset loss (selling land), (4) borrower ends up worse off.
- Do not write a long essay — 2 marks = 2 key points with one example is enough.