Q. Consider the following statements regarding High Powered Money:- The total liability of the monetary authority of the country, RBI, is called the monetary base or high powered money.
- 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.
- Total amount of money stock in the economy is equal to the volume of high powered money.
Which of the above statements is / are correct?
Answer:
Only 1 and 2
Notes: Statements 1 and 2 are correct; high powered money (monetary base) is the total liability of the RBI and comprises currency in circulation and certain deposits. Statement 3 is incorrect because the total money stock includes bank-created money, whereas high powered money refers only to the monetary base, not all money circulating in the economy.