The central bank uses its balance sheet to control the quantity of money and credit in the economy.

a. The central bank holds assets and liabilities to meet its responsibilities as the government’s bank and the bankers’ bank.

b. Central bank assets include securities, foreign exchange reserves, and loans.

c. Central bank liabilities include currency, the government’s account, and reserves.

d. Reserves equal commercial bank account balances at the central bank plus vault cash.

e. The monetary base, also called high-powered money, is the sum of currency and reserves, the two primary liabilities of the central bank.