Monetary Base

The monetary base is  comprised of only coins, paper money(which are held in the public’s hands), and commercial banks’ reserves with the central bank.  The Federal Reserve can influence the monetary base via open market operations.  An increase in the monetary base usually leads to an increase in the money supply due to the multiplier effect, but this does not always occur, as in the Great Depression of 1929-1933, the monetary base increased due to central bank intervention but the broad money supply decreased.

Related Terms

Popular Articles