Currency in circulation plus bank reserves:

Question

Quizplus · Accepted Answer

The sum of currency in circulation (i.e. physical currency outside of banks) and bank reserves held by commercial banks at the central bank forms the monetary base, also known as the high-powered money or base money. It is the most basic component of the money supply and serves as the foundation for the creation of other forms of money by banks through lending and the creation of deposits.

B) is not correct because M1 and M2 include other components of the money supply beyond the monetary base.

C) and D) are not correct because the required reserves and excess reserves for a bank refer to the amount of reserves a bank is required to hold as a fraction of its deposits and the amount of reserves it holds above that requirement, respectively. They do not encompass the entire monetary base.

Currency in Circulation Plus Bank Reserves