CA Foundation · Business Economics · Money Market
Which of the following components makes up reserve money (high-powered money) in India, as per the RBI's approach?
Reserve money consists of currency in circulation, bankers' deposits with the RBI and other deposits with the RBI. These are the central bank's own liabilities, which form the base on which banks create deposits and the money supply expands.
- ACurrency in circulation, bankers' deposits with the RBI and other deposits with the RBICorrect
- BDemand deposits and time deposits of the public with commercial banks
- CCurrency with the public and savings deposits with post offices
- DTotal bank credit to government and to the commercial sector
Explanation
On the liability side of the RBI, reserve money consists of currency in circulation, bankers' deposits with the RBI and 'other' deposits with the RBI. Option B describes parts of broad money, not the monetary base.
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