The correct option is Currency held by the public and reserves held by commercial banks..
Explanation
High-Powered Money, also known as Reserve Money ($M_0$), Base Money, or Monetary Base, represents the total liability of the monetary authority (Reserve Bank of India) and the Government of India. It serves as the foundation upon which the banking system creates credit and expands the money supply.
Mathematically, it is expressed as:
$H = C + R + OD$
- $C$: Currency held by the public (notes and coins).
- $R$: Cash reserves of commercial banks (held with themselves and with the RBI).
- $OD$: Other deposits with the RBI.
Option Analysis:
- Currency held by the public and reserves held by commercial banks. is Correct: It accurately identifies the two primary components of High-Powered Money: currency in circulation among the public and the reserves maintained by commercial banks. These reserves allow banks to create credit, leading to the money multiplier effect.
- Total demand deposits and time deposits in the banking system. is Incorrect: Total demand deposits and time deposits constitute the aggregate deposits in the banking system. These are components of Broad Money ($M_3$), not High-Powered Money.
- Currency notes issued by the Government of India only. is Incorrect: While currency notes are part of High-Powered Money, this option is restrictive. It excludes bank reserves and implies only notes issued by the Government (like the one-rupee note), ignoring the vast majority of currency issued by the RBI.
- The total profit generated by the Reserve Bank of India. is Incorrect: The profit generated by the RBI (surplus income) is transferred to the government as a dividend. It is an income metric, not a measure of the monetary base.
Key Takeaway: High-Powered Money ($H$) differs from Money Supply ($M$). $H$ is the actual currency produced by the central bank and government, whereas $M$ includes deposits created by commercial banks through the credit multiplier mechanism.