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Question

What is high-powered money?


Solution

High powered money is the liability of the monetary authority of the country. This is also called the monetary base and is created by the RBI. High powered money includes currency (notes and coins), deposits with the government and reserves of commercial banks with RBI. So, to sum up, high powered money is

H = C + R

Where

H - High powered money

C - Currency

R - Cash Reserves of commercial banks

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