Explain about monetary base, Macroeconomics

Assignment Help:

Q. Explain about Monetary base?

Monetary base is defined as the total value of all currency (coins andbanknotes) outside the central bank and commercial banks' (net) reserves with central bank. Monetary base is a debt in the balance sheet of central bank. Its assets are mainly comprised of the foreign exchange and gold reserves and bonds issued by national government. Currency inside central bank has no value - it's comparable to an "I owe you" written by yourself and held by yourself.  

Because the central bank has a monopoly on issuing currency, it's in complete control of the monetary base. Though central bank doesn't completely control the money supply. This is because of the second component of the money supply - bank deposits - that it can't control. Providentially, it has methods of influencing the total money supply.

In many nations, central bank imposes reserve requirements. This means that commercial banks are obliged to hold a specific percentage of deposits as reserves either as currency in their vaults or as a deposit at central bank. Reserve requirements are generally slightly small (typically between 0% and 10%) that means the monetary base is quite close to the value of all currency outside the central bank.


Related Discussions:- Explain about monetary base

Gross domestic product, GDP is an important indicator of a nation's economi...

GDP is an important indicator of a nation's economic performance. It has many components which contribute to the growth of the economy. Oil is a minor component of GDP and therefor

Wage rate increases, A person chooses between leisure and consumption. All ...

A person chooses between leisure and consumption. All of their consumption comes from current income. The utility derived from any combination of leisure and consumption is given b

Marginal cost of care, Given the following MV information, what is the opti...

Given the following MV information, what is the optimal allocation of care according to the Preteens criteria, when the marginal cost of care is constant at $100. Person A Person B

Economics, The Neoclassical thinking that assumes that all firms are establ...

The Neoclassical thinking that assumes that all firms are established with the intention of making profit has been challenged by the managerial discretion models. How successful ha

Overnight interest rate of central banks, Overnight interest rate of Centra...

Overnight interest rate of Central banks When the central bank buys government securities, it purchases from many individuals, companies and institutions. Deposits and reserves

What is consumer price index, What is Consumer Price Index CPI is a pri...

What is Consumer Price Index CPI is a price index of a specific basket known as the CPI-basket. CPI-basket contains essentially all the service and goods consumed in a country

Debt , What is debt swept?

What is debt swept?

Aplia, Hi, I need help with my Aplia macroeconomics problem sets.

Hi, I need help with my Aplia macroeconomics problem sets.

Government in the cross model, The government in the cross model ...

The government in the cross model Net taxes NT(Y) depends positively on real GDP in the cross model In this model when national income increase

Simultaneous determination of y in the is-lm model, Q. Simultaneous determi...

Q. Simultaneous determination of Y in the IS-LM model? Simultaneous determination of Y and R in the IS-LM model   By combining IS curve and LM curve, we can graphically e

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd