Define high powered money.
Answers
Sum of the currency held by the public and reserves held by financial institutions with the Federal Reserve Banks. ... Also called High Powered Money because the effect of changes in monetary base on money supply is magnified by the money multiplier.
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Answer:
High powered money or powerful money refers to that currency that has been issued by the Government and Reserve Bank of India. Some portion of this currency is kept along with the public while rest is kept as funds in Reserve Bank.
Thus, we get the equation as:
H = C + R
Where H = High Powered Money
C = Currency with the public (Paper money + coins)
R = Government and bank deposits with RBI
Thus the sum total of money deposited with the public and the funds of banks is termed as powerful money. It is mainly created by the central bank. Since funds of commercial banks play an important role in the creation of credit, so it is very important to study about funds.
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