Q. Consider the following statements:
1.Currency issued by the central bank, held by the public or by the commercial banks, is called high-powered money.
2.RBI performs a variety of developmental and promotional functions.
Which of the statements given above is/are correct?

[A] 1 only

[B] 2 only

[C] Both 1 and 2

[D] Neither 1 nor 2

Answer: C
Notes:

Explanation: From the point of view of money supply, we need to focus on its function of issuing currency.

  • This currency issued by the central bank can be held by the public or by the commercial banks, and is called the ‘high-powered money’ or ‘reserve money’ or ‘monetary base’ as it acts as a basis for credit creation.
  • RBI Performs a variety of developmental and promotional functions under which it did set up institutions like IDBI, SIDBI, NABARD, NHB, etc.

Source: NCERT – Macro economics