If Treasury currency outstanding decreases, the monetary base will
A)be unaffected.
B)increase.
C)decrease.
D)decrease, provided that the decline in currency represents a net decrease in the public's holdings.

Question

Quizplus · Accepted Answer

The monetary base consists of currency in circulation plus reserves held by banks. If Treasury currency outstanding decreases, it means that there are fewer physical dollars in circulation. This directly reduces the amount of currency in circulation, which causes the monetary base to decrease.

If Treasury Currency Outstanding Decreases, the Monetary Base Will