AP MacroeconomicsMoney & Monetary Policy
Monetary Base (High-Powered Money)
The monetary base, or high-powered money, is currency in circulation plus bank reserves — the money the central bank directly controls.
It is called 'high-powered' because each dollar of base can support a larger change in the broader money supply through the multiplier as banks lend. The base differs from M1/M2: it includes bank reserves (not in M1) but excludes the deposit expansion that reserves enable. The Fed changes the base mainly through open market operations.
Formula / Example
Monetary base (MB) = Currency in circulation + Bank reserves; Money supply ≈ m × MB