Q. Consider the following statements regarding High Powered Money:

1. The total liability of the monetary authority of the country, RBI, is called the monetary base or high powered money.
2. It consists of currency (notes and coins in circulation with the public and vault cash of commercial banks) and deposits held by the Government of India and commercial banks with RBI.
3. Total amount of money stock in the economy is equal to the volume of high powered money.

Which of the above is / are correct?
Answer: Only 1 and 2
Notes: The third statement is not correct. Total amount of money stock in the economy is not equal to the volume of high powered money. Only the currency issued by the central bank can be held by the public or by the commercial banks, and is called the ‘high-powered money’ or ‘reserve money’ or ‘monetary base’ as it acts as a basis for credit creation.

This question is part of UPSC Daily 20 MCQ Series Course on GKToday Android app.