Consider the following statements regarding “High Powered Money”: 1. The currency issued by the central bank is called high power money. 2. It is generally backed by supporting reserves and its value is guaranteed by the government and it is the source of all other forms of money. 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: The central banks of all the countries are empowered to issue the currency.

The currency issued by the central bank is called ‘high power money’ because it is generally backed by supporting ‘reserves’ and its value is guaranteed by the government and it is the source of all other forms of money.
The currency issued by the central bank is, in fact, is a liability of the central bank and the government.

Source: Ramesh Singh