Collage of business,
Economics and information
systems
cors number : Eco102
CRN :10640
Money and Banking
Dr / Zinab Mohamed
Elgawady
Dr / Mohamed AboElsoud
Monetary base
?What Is the Monetary Base
monetary base is the total amount of •
money that its central bank creates.
This includes currency in circulation or
held in reserves at commercial banks.
This base also includes money held in
reserves by banks at the central bank
MB = C +
R
Example to understand the
monetary base
As sume that the central bank of a country has issued
currency worth 100 $ million and the commercial banks
. in the country hold reserves 50 $ million
In this case
Monetary base = C+ R
million in currency + 50 $ Million in reserves $ 100 =
?Why to study the monetary base
The monetary base is crucial as it directly " •
influences financial stability. It serves as a key
tool for central banks to manage the money
supply, control inflation, and regulate interest
rates. Additionally, it plays a vital role in
fostering economic growth by ensuring adequate
liquidity within the economy, thereby
".maintaining stability
Sources of monetary base
The Central Bank is the primary source of the .1 •
monetary base
The central bank is the primary source of the monetary base, as it •
prints money and supervises the withdrawal of money from the
.market when required
Government Bonds .2 •
The central bank can buy government bonds from the financial •
.markets to increase the money supply or sell them to reduce it
Mandatory (Required) Reserves of Banks .3 •
The central bank imposes a percentage of mandatory reserves on •
commercial banks, limiting the ability of the bank to create new
.money through loans
Types of Bank reserves
Mandatory Surplus .EX
Reserve Reserve
The central bank determined that the
It is a specific It is an amount mandatory reserve ratio is 10% of
Percentage set kept by the . total Customer deposits
by The The bank this is
central bank more Than the Assuming ono b ank has customer
deposits of 1,000,000 $ what would
that banks Mandatory the amount of the mandatory
must keep from reserve this reserve
customer amount can be solution
deposits . The used for Mandatory reserve = RRR × Total
bank can’t use lending for customer deposits
. this amount .investment 100.000 =1,000.000× % 10 =
Mandatory reserve = 100.000
Uses of monetry base
Control the money supply by providing liquidity to banks and .1 •
.markets or withdrawing it
Financing government deficits through the central bank's .2 •
.purchase of bonds
.Supporting commercial banks by providing cash reserves .3 •
.Implementing a specific monetary policy .4 •
The Relation between money supply •
and money base
Inflation
The monetary base plays an •
important role in determining the
level of inflation in an economy.
When the monetary base increases,
it can lead to inflation, as there is
more money in circulation in the
economy. When governments want
to control inflation, they decrease
the money supply by shrinking the
monetary base as a part of
.contractionary monetary policy
:True or False
The monetary base includes money held in reserves by commercial .1 •
banks
Answer : T
.The primary source of the monetary base is commercial banks .2 •
‘ Answer : F ‘ The primary source of the monetary base is Central bank
.The monetary base influences inflation levels in an economy .3 •
Answer : T
.Government bonds are not related to changes in the monetary base .4 •
Answer : F :’ Government bonds are related to Changes in the monetary
’ base
Central banks use the monetary base as a tool for implementing .5 •
specific monetary policies
Answer : T
:Multiple-Choice Questions (MCQs)
?What is the monetary base .1 •
a) The total deposits in commercial banks •
b) The money supply in circulation •
c) The total amount of money created by the central •
bank, including reserves
d) The amount of currency held by the public •
Answer: c •
Which of the following is a source of the monetary .2 •
?base
a) Savings accounts •
b) Government bonds •
c) Stock market investments •
d) Corporate bonds •
Answer: b •
How does an increase in the monetary base affect .3 •
?inflation
a) It decreases inflation •
b) It has no effect on inflation •
c) It leads to deflation •
d) It can increase inflation •
Sources
CFI site article (Monetry base)- •
Quickonomics site article (Monetry base)- •
Investopedia site article (monetry base)By James Chen- •
and reviewed by Michael jboyle
https://www.investopedia.com/terms/m/monetary-base.
asp
Economics online site article monetry base Prepared by- •
Siddiq Ansari
s://www.economicsonline.co.uk/definitions/monetary •
e.html/
IMF Research: Money and Banking Overview- •
Federal Reserve Board- •
Ramy hamza 200028606.1
Ereny Goerge Helmy 200042560.2 •
Mahmoud mohamed abdel samea 200025693.3 •
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Yousef yasser mohamed200043413.5 •
Mahmoud Mohamed Taha200042449.6 •
Moayed Ahmed ezz eldin 200042006.7 •
Hossam Nabil88651.8 •
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Omar eslam Mohamed 200042492.10 •
Abdallah Yasser Naser200020395.11 •
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Marwan Hussien 200040606.14 •
Aya Mahmoud mahamed eltaher 200039772.15 •
Mohammed emasEmad. 200040621.16 •
hazem Khaled 200043433 .17 •
Mohamed Hussein 200035193.18 •
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