The monetary base is the

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Question recap: The monetary base is the ___.
Option 1: 'sum of gold and foreign exchange held by the Fed.' This describes foreign assets or international reserves conceptually, but the monetary base is not defined by gold or foreign exchange holdings; it relates to currency in circulation plus bank reserves, so this counts as an incorrect characterization.
Option 2: 'sum of government securities and loans to banks held by the Fed.' This mixes the central bank's balance-sheet items differently. The monetary base excludes the broader asset holdings like government securities (which are part of the monetary policy tools) and loans; it focuses on currency and reserves, so this is incorrect.
Option 3: 'minimum reserve banks must hold to cover any losses from unpaid loans.' This describes a risk reserve or capital adequacy concept, not the monetary base. It confuses regulatory reserves with the central bank’s monetary base measure, so this is false.
Option 4: 'sum of coins, required reserves, and banks' loans.' Here we see a misstatement: the monetary base does not include 'banks’ loans' (loans are part of the money supply and bank assets, not base components). It also confuses the composition by including 'required reserves' rather than 'reserves held at the central bank,' making it incorrect.
Option 5: 'sum of coins, Federal Reserve notes, and banks' reserves at the Fed.' This description aligns with the standard definition: coins in circulation plus Federal Reserve notes (currency in circulation) plus the reserves that banks hold at the Fed. Combining these elements yields the monetary base, so this option is the correct one.
In short, each incorrect choice either misidentifies the assets that constitute the base, confuses regulatory concepts with base components, or mixes items that are not included in the base. The only option that accurately matches the textbook definition is the one that totals currency in circulation (coins and Federal Reserve notes) and banks’ reserves held at the Fed.

ECON 210-003 Homework 10

The monetary base is the

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