What is the monetary base often referred to as?

The monetary base is often referred to as "high-powered money" because it represents the total amount of money that a central bank creates, which serves as a foundation for the money supply in an economy. This base includes currency in circulation (physical cash) and the reserves held by commercial banks in their accounts with the central bank.

The term "high-powered" comes from the fact that a small amount of this monetary base can lead to a much larger total money supply through the process of fractional reserve banking, where banks can lend out a portion of their deposits while keeping a fraction in reserve. Thus, changes in the monetary base can have a significant impact on the overall economy and money supply due to this multiplier effect.

Understanding that the monetary base is crucial for influencing interest rates and economic activity helps clarify why it’s termed as high-powered money, as it highlights the pivotal role it plays in monetary policy. Other terms, such as fiat money or cash in circulation, refer to aspects of money but do not encapsulate the same broad concept of the foundational monetary supply as high-powered money does.