The monetary base is equal to
A) Fed liabilities plus currency outstanding.
B) Fed liabilities minus loans to commercial banks.
C) bank reserves plus currency held by the non-bank public.
D) the M1 money supply minus Fed loans to commercial banks.

Question

Quizplus · Accepted Answer

The monetary base, also known as high-powered money, is the sum of bank reserves and currency held by the non-bank public. Therefore, choice C (bank reserves plus currency held by the non-bank public) is the correct answer. Choices A (Fed liabilities plus currency outstanding) and B (Fed liabilities minus loans to commercial banks) are incorrect because they do not include bank reserves, which are a significant component of the monetary base. Choice D (the M1 money supply minus Fed loans to commercial banks) is also incorrect because it includes assets that are not part of the monetary base, such as private sector demand deposits.

The Monetary Base Is Equal to