What is included in the monetary base?

The monetary base, often referred to as the money supply, includes all forms of money within an economy that can quickly be converted to cash. This definition encompasses not just physical cash (like coins and banknotes), but also deposits held in the central bank and commercial banks. These deposits are considered part of the monetary base because they can be easily accessed and utilized by individuals and businesses for transactions.

This answer emphasizes the broader definition of money that includes various financial instruments and accounts, which allows for a more comprehensive understanding of the money supply. In contrast, physical cash alone does not represent the total liquidity available in the economy. Other options, like bonds issued by the government, are not included in the monetary base since they are financial assets rather than liquid forms of currency. Similarly, only considering commercial bank reserves excludes the essential element of physical currency and the broader array of demand deposits that also contribute to the money available in the economy. Thus, the inclusion of all forms of money, especially deposits, reflects a more accurate representation of the monetary base.