Question

High-powered money (M₀) is called “high-powered” mainly because ______.

Options

• It earns the highest interest rate

• It directly measures all time deposits

• It is fully backed by gold reserves

• It creates a multiple expansion of total money supply

Answer 1

It creates a multiple expansion of total money supply

Explanation: 

M₀ forms the monetary base; through the money multiplier, a small change in M₀ can lead to a much larger change in the overall money supply.