The monetary base minus currency in circulation equalsA) reserves.B) the borrowed base.C) the nonborrowed base.D) discount loans.
Question
The monetary base minus currency in circulation equalsA) reserves.B) the borrowed base.C) the nonborrowed base.D) discount loans.
Solution
The monetary base is made up of two main components: currency in circulation and reserves. Currency in circulation refers to the physical currency (coins and bills) that is not held by the banks or the government. Reserves, on the other hand, are the deposits that commercial banks hold in their accounts with the central bank.
So, if you subtract the currency in circulation from the monetary base, you are left with the reserves. Therefore, the answer is A) reserves.
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