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The monetary base minus currency in circulation equals A) reserves. B) the borrowed base. C) the nonborrowed base. D) discount loans.

Question

The monetary base minus currency in circulation equals

  • A) reserves.
  • B) the borrowed base.
  • C) the nonborrowed base.
  • D) discount loans.
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Solution

To answer the question, let's analyze the options given.

Breakdown of the Problem

  1. The question refers to a monetary concept relating to the monetary base and its components.
  2. The monetary base (MB) includes currency in circulation and reserves held by banks.

Relevant Concepts

  • The monetary base (MB) can be defined as: MB=Currency in Circulation+Reserves \text{MB} = \text{Currency in Circulation} + \text{Reserves}
  • According to the problem, we want to find out what the monetary base minus the currency in circulation equals: MBCurrency in Circulation=Reserves \text{MB} - \text{Currency in Circulation} = \text{Reserves}

Analysis and Detail

  1. Reserves are the funds that banks hold in their accounts at the central bank plus the cash they keep in their vaults.
  2. When you subtract currency in circulation from the monetary base, you are left with the total reserves held by banks.

Verify and Summarize

  • The relationship derived confirms that the leftover amount after subtracting currency in circulation from the monetary base indeed equals reserves.

Final Answer

Thus, the correct answer is: A) reserves.

This problem has been solved

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