In economics, monetary base refers to the volume of money created by the Federal Reserve - that is, currency and bank reserves held by financial entities or deposited in the Federal Reserve.
The monetary base is divided into classifications by macroeconomic theory, which vary according to complexity.
M0 = Restricted Monetary Base = currency issued (paper currency and metallic currency) + bank reserves (currency held by financial institutions and their deposits with the Central Bank);
M1 = currency held by the public (paper money and coin) + demand deposits in commercial banks. M1 is the total currency that does not yield interest and is of immediate liquidity.
M2 = M1 + term deposits (investment deposits, savings deposits, short-term fixed income financial investment funds) + government bonds held by the public.
