Editing Monetary base (section)

==Management==
[[File:US monetary base - Updated.png|alt=|left|thumb|U.S. Monetary base]]
[[File:Money supply Euro.png|thumb|Base money of the Euro zone and money supplies M1, M2 and M3, and euro zone GDP from 1980–2021. Logarithmic scale.]]
[[Open market operation]]s are [[monetary policy]] tools which directly expand or contract the monetary base.

The monetary base is manipulated during the conduct of monetary policy by a [[finance ministry]] or the central bank. These institutions change the monetary base through open market operations: the buying and selling of government bonds. For example, if they buy government bonds from commercial banks, they pay for them by adding new amounts to the banks’ reserve deposits at the central bank, the latter being a component of the monetary base.

Typically, a central bank can also influence banking activities by manipulating interest rates and setting [[reserve requirements]] (how much money banks must keep on hand instead of loaning out to borrowers). Interest rates, especially on [[federal funds]] (ultra-short-term loans between banks), are themselves influenced by open market operations.

The monetary base has traditionally been considered '''high-powered''' because its increase will typically result in a much larger increase in the supply of [[demand deposit]]s through banks' loan-making, a ratio called the [[money multiplier]].<ref name="Mankiw">{{citation |last=Mankiw |first=N. Gregory |title=Macroeconomics |publisher=Worth |year=2002 |edition=5th |pages=482–489 |chapter=Chapter 18: Money Supply and Money Demand }}</ref> However, for those that do not agree with the theory of the money multiplier, the monetary base can be thought of as high powered because of the [[fiscal multiplier]] instead.