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    Question

    Reserve Money (M0), also known as High-Powered Money or

    the Monetary Base, is the most fundamental aggregate. According to RBI reporting in 2026, which of the following is the primary source of Reserve Money?┬а
    A Net non-monetary liabilities of the RBI Correct Answer Incorrect Answer
    B Short-term commercial papers held by corporate entities Correct Answer Incorrect Answer
    C Total deposits with the Post Office Correct Answer Incorrect Answer
    D Net RBI credit to the Government and RBI's claims on banks Correct Answer Incorrect Answer
    E M3 multiplied by the Money Multiplier Correct Answer Incorrect Answer

    Solution

    Reserve Money (M0) represents the total liability of the RBI. Its components are Currency in Circulation, Bankers' deposits with the RBI, and 'Other' deposits with the RBI. The sources of M0 include the RBI's net credit to the Government, its claims on banks and the commercial sector, and its net foreign exchange assets ┬а Note - The relationship between M3 and M0 is defined by the Money Multiplier. M3 =m x M0 Thus, M3 is not a source of M0; rather, M0 is the base upon which M3 is created.

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