When the Federal Reserve calls in a discount loan from a bank, the monetary base increases, and reserves increase.
The total quantity of cash in the hands of the general people or in the form of commercial bank deposits kept in the reserves of the central bank constitutes the monetary base. Since it does not include various types of non-currency money that are common in a modern economy, this measure of the money supply is not frequently used.
The monetary base increases as the Federal Reserve generates additional funds to buy bonds from commercial banks, increasing the banks' reserve holdings in the process.
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