Everything about Monetary Base totally explained
In
economics, the
monetary base, or the
money base (often called
narrow money in the
UK) is a term relating to the volume of money in the
economy, or
money supply. The monetary base comprises only
currency (
banknotes and
coins) and
commercial banks'
reserves with the
central bank. As such, it's a narrow definition of money supply, consisting of only the most
liquid forms of
money. Wider definitions of the money supply include the public's bank
deposits and are therefore larger in volume and encompass money of a lower liquidity.
"
Open market" operations are
monetary policy tools that affect directly the Monetary Base
(External Link
).
Equation
Monetary Base = M0 ("M-zero")= Non Borrowed Monetary Base + Discount Loans
Monetary Base (MB) * Money base money multiplier (m) =
M1
Monetary Base = "High-powered money" = Currency (C) + Reserves (R) = Currency (C) + (Deposits (D) * Required Reserve Ratio (r))
(Contrast with M1, which is Currency + Deposits)
Further Information
Get more info on 'Monetary Base'.
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