The monetary base consists of:

Question

Quizplus · Accepted Answer

The monetary base includes currency in circulation (the physical money supply in the hands of the public) and bank reserves (funds that banks hold either as required reserves or excess reserves). Therefore, choice A, which defines the monetary base as currency plus reserves, is the correct answer. Choice B (currency plus required reserves) is incorrect because it does not include excess reserves, while choice C (currency plus excess reserves) includes excess reserves but not required reserves. Choice D (currency plus demand deposits) is also incorrect because demand deposits are not part of the monetary base; they are just a component of the broader money supply.

The Monetary Base Consists Of