The monetary base consists of
A) the quantity of money.
B) government securities held by the Fed.
C) the sum of Federal Reserve notes, coins, and depository institutionsʹ deposits at the Fed.
D) demand deposits and vault cash.

Question

Quizplus · Accepted Answer

The monetary base is the sum of Federal Reserve notes (currency in circulation) and coins in circulation, plus bank reserves held by Federal Reserve Banks. This includes depository institutionsʹ deposits at the Fed, but not demand deposits (option D). It also includes government securities held by the Fed (option B) since they are used to conduct open market operations, which affect the size of the monetary base. Option A is incorrect because the monetary base is not the same as the quantity of money in the economy, which includes not only the base but also bank deposits and other types of money.

The Monetary Base Consists of