High Power Money

                                                                 High power  Money
Money Indian Economy

In the previous article, we have seen how money  stock is maintain by the Reserve Bank. Today, let us understand all these concepts with an example. (Reference article dated 14/07/2018)

Suppose the Reserve Bank of India printed a 2000 rupees note and suppose that only single person John lives in the country ..

At this time the M0 = Rs2000

Because in M0, currency notes and coins are counted by the people.
Similarly, in the M1, we can also calculate M2as well as Rs 2,000.

 In M1, M2 and M3 are measured, so M2 and M3 will also be Rs 2000.

Suppose John put this money in bank's demand deposits. At such times, M0 will be zero and M1, M2 and M3 will be Rs. 2,000.

Suppose John took this money and kept it for 1 year. Now both M0 and M1 will be zero and M2 and M3 will be Rs 2,000.

Suppose John remits this money for more than 1 year term, then at this rate M0, M1, M2 will be zero and M3 will be Rs 2,000.

Monetary Base :

M0 is called reserve money.

Similarly, M0 is also known as monetary base or high power money..

So M1, M2, M3 is called money supply.

Both reserve money and money supply concept are different.

M0 is universal. So M3 is the least liquid.

It is easy to convert money into M1 because it has money and currency deposits in people's hands. It is most difficult to convert money into M3 because the bank created by it has money.

  •  M0 is called Reserve money
If reserve money is raising has increased that money supply is increasing.
 Due to the ability to increase the supply of money, M0 is said to be the reserve money  or high power money.
 next article we learn more information..............Keep Reading...stay connected 

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