With reference to High Powered Money consider the following statements 1 It is the total liability o...........

Economic Affairs Money Supply and Monetary Policy

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With reference to High Powered Money,consider the following statements:

1. It is the total liability of the Reserve Bank of India.

2. It comprises of all currencies and deposits held by the Government of India and commercial banks with RBI.

Which of the above statements is/are correct?

1 Only

2 Only

Both 1 and 2

Neither 1 nor 2

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Explanation:

High Powered Money
Statement 1 is correct: High Powered Money (HPM) is the net or total liability of the monetary authority of any nation. In India, it is the liability of RBI.
Statement 2 is correct: It is simply the sum of all currency in circulation with the people of country; cash kept in the commercial bank vaults along with the deposits of government of the country and commercial banks. High Powered Money (Reserve Money or Base Money) – High powered money is the base of money supply expansion in the
economy.
High Power Money = C + OD + CR. C = Currency with the public OD = Other Deposits of the general public with the RBI (insignificant) CR = Cash Reserves of banks which consists of cash with banks and bankers deposit with RBI