High Powered Money (HPM), also known as the Monetary Base, is the total liability of the Monetary Authority (RBI in India). Statement 1 is correct. HPM consists of currency held by the public, vault cash of commercial banks, and deposits held by commercial banks and the government with the RBI. Statement 2 correctly identifies these components. Statement 3 is incorrect because the deposits held by commercial banks with the RBI are statutory reserve requirements (like CRR) and excess reserves, which are demand liabilities of the RBI. These deposits are refundable on demand to the respective banks, though subject to reserve requirements. Government deposits might have different operational rules but commercial bank deposits are essentially callable by banks.
Consider the following statements regarding the High Powered Money : 1. It is the total liability of Monetary Authority of India. 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. The deposits are not refundable by RBI on demand from deposit-holders. Which of the above statement(s) is/are correct ?
Asked in PPSC CS Prelims 2013 · Topic: Money & Banking (Money: Functions, Forms, and Measures of Money Supply)
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