Which of the following comprises the monetary base?

The monetary base, also known as the high-powered money or base money, refers specifically to the total amount of a currency that is in circulation or held in reserves. This includes two main components: physical currency in circulation among the public and the reserves that banks hold in their vaults.

In essence, when we talk about currency, we are referring to the physical money (coins and paper bills) that people use daily for transactions. Vault cash represents the funds that banks hold in their physical branches and is also a part of the reserves they maintain with the central bank. Therefore, the combination of these two elements, currency and vault cash, constitutes the monetary base.

Other options listed, such as Federal government bonds, commodities, and equities, do not directly contribute to the monetary base. Government bonds represent debt that can be used in monetary policy but are not part of the monetary base itself. Commodities can include physical goods like gold or oil, which do not function as currency in the monetary system. Equities refer to stocks or ownership in companies and also do not play a role in the monetary base, as they do not provide liquidity in the same way that currency and reserves do. Therefore, the correct understanding of the monetary base is captured accurately