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Liquidity Trap. It is a situation of very low rate of interest where people expect the interest rate to rise in future and consequently bond prices to fall. So it becomes totally un-attractive to invest money in bonds causing capital loss. People withhold, as inactive balance of any amount of money they have and nothing is invested. In such a situation speculative demand for money is infinite making the demand curve a horizontal straight line curve parallel to x-axis beyond point L as shown in Fig (a). Economists call it a situation of liquidity trap because expansion in money supply gets trapped in the sphere of liquidity trap and therefore, cannot affect the rate of interest.

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High Powered Money. High powered money or monetary base refers to the money produced by R.B.I. and Government of India. Alternatively total liability of monetary authority of the country and R.B.I. is called monetary base or high powered money (H). It consists of (i) currency (notes and coins) in the hands of public (C), (ii) Cash reserve of commercial banks (R) and (iii) Other deposits with R.B.I. (OD). Symbolically:
H = C + R + OD
High powered money is different from ordinary money (M₁) which consists of (i) currency held by public (C), (ii) Demand deposits in banks (DD), and (iii) Other deposits with R.B.I. (OD), i.e., M₁ = C + DD + OD. The only difference between the two (H and M₁) pertains to their one component. It is currency in circulation with the public (C) for high powered money but demand deposits in banks (DD) for ordinary money. In high powered money if any person produces a currency note to R.B.I., the latter must pay him value equal to the figure printed on the note.

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With the Jan Dhan Yojna a greater number of individuals are brought under the ambit of banking system. Those individuals who earlier did not have savings account now have access to banking facilities and have opened savings account with the commercial banks.
In this way, the commercial banks are able to tap greater savings which in turn can be used to lend loans for investment purposes. Thus, the yojna indirectly helps in increasing the investment and production in the economy which in turn would help in improving the national income.

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The central bank is the bank of issue. It has the monopoly of note issue. Notes issued by it circulate as legal tender money. It has its issue department which issues notes and coins to commercial banks. Coins are manufactured in the government mint but they are put into circulation through the central bank.
However, the currency issued by the central bank is its monetary liability. In other words, the central bank is obliged to back the currency issued by it by assets of equal value such as gold coins and bullions, foreign exchange. In addition to issuing currency to the general public, the central bank also issues currency to the central government of the country.

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Central banks act as bankers, fiscal agents and advisers to their respective governments. As a banker to the government, the central bank keeps the deposits of the central and state governments and makes payments on behalf of governments. But it does not pay interest on governments deposits. It buys and sells foreign currencies on behalf of the government. It keeps the stock of gold of the government. Thus it is the custodian of government money and wealth. As a fiscal agent, the central bank makes short-term loans to the government for a period not exceeding 90 days. It floats loans, pays interest on them, and finally repays them on behalf of the government. Thus it manages the entire public debt. The central bank also advises the government on such economic and money matters as controlling inflation or deflation, devaluation or revaluation of the currency, deficit financing, balance of payments, etc.

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Legal tender money. Money that has a legal sanction by the government behind it, is called legal tender or legal tender money. It is money issued by monetary authority or the government which cannot be refused by any person in payment for transactions. Government issues an order describing what is money and that becomes legal tender money. Everybody is bound to accept it in exchange for goods and services and in discharge of debts. No one can refuse to accept it because non-acceptance is an offence. For example, in India currency (notes) and coins are legal tender money which cannot be refused in payment for transactions. In this context chequable demand deposits is not money because a person can legally refuse to accept payment through cheques. The legal tender status given by the government to money may be limited or unlimited.
Fiat Money. Fiat money is any money backed by the order (fiat) of the government to act as money. People have to accept it in exchange for goods and services and in discharge of debt as the government has ordered it to be money. It is also called legal tender as it circulates in the country on the fiat (i.e., command) of the government. Fiat money is generally created and issued by the government at the time of crisis like war or emergency. Since it is issued, without any backing of gold, silver or other reserves, therefore, it is inconvertible (not convertible) into anything than itself.