CA Foundation · Business Economics · Money Market
In the RBI's money supply framework, reserve money (H) is also called high-powered money. Which of the following correctly lists its components?
Reserve money consists of currency in circulation, bankers' deposits with the RBI and other deposits with the RBI. These are the central bank's monetary liabilities that form the base on which banks create deposits, which is why it is called high-powered money.
- ACurrency in circulation, bankers' deposits with RBI, and other deposits with RBICorrect
- BCurrency with the public, demand deposits and time deposits of banks
- CCurrency with the public and savings deposits with post offices
- DNet bank credit to government and net bank credit to commercial sector
Explanation
Reserve money is the liability side of the RBI's balance sheet: currency in circulation, bankers' deposits with the RBI and other deposits with the RBI. The second option describes components of broad money M3 (public's holdings), not the monetary base. The fourth lists sources of money supply (assets side).
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