Question

Assertion (A): High powered money is known as monetary base.

Reason (R): High powered money is called monetary base because it provides basis for credit creation.

Options

• Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).

• Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A).

• Assertion (A) is true but Reason (R) is false.

• Assertion (A) is false but Reason (R) is true.

Answer 1

Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).

Explanation:

High-powered money is known as the monetary base because it serves as the foundation for the entire economy’s money supply. Commercial banks use the cash reserves in this base as raw material to increase deposits and credit. As a result, the rationale explains explicitly and properly why the assertion’s unique terminology is utilised.