University of Central Florida (UCF) ECO3203 Intermediate Macroeconomics Practice Exam 1

To determine the monetary base, we must first understand what components make up the monetary base in the context of a country's banking system. The monetary base, also known as high-powered money, consists of two key elements: currency in circulation and reserves held by banks.

In this scenario, currency held by the public is $100 billion. This represents the physical money that people have in their hands or are using for everyday transactions. Additionally, reserves held by banks amount to $50 billion. These reserves are the funds that banks keep in their accounts at the central bank and can either be required reserves (mandatory) or excess reserves (beyond what is required).

To calculate the monetary base, we add together the currency held by the public and the reserves held by banks:

Monetary Base = Currency Held by Public + Reserves Held by Banks

Monetary Base = $100 billion + $50 billion

Monetary Base = $150 billion

Thus, the correct answer is that the monetary base equals $150 billion, which aligns with the option presented. This is vital for understanding how total money supply is influenced by both the public's accessibility to cash and the banks' liquidity as determined by their reserves.