If the government collects taxes and makes expenditures of a smaller amount, bank reserves
A) are unaffected.
B) may rise or fall.
C) rise.
D) fall.

Question

Quizplus · Accepted Answer

When the government collects taxes and makes expenditures of a smaller amount, they are reducing the money supply in the economy. This means that there are fewer funds available for banks to lend out, which will cause a decrease in bank reserves. Therefore, bank reserves will fall in this situation.

If the Government Collects Taxes and Makes Expenditures of a Smaller