If the government collects taxes to pay for expenditures of an equal amount, bank reserves
A) are unaffected.
B) rise by an equal amount.
C) rise by a multiple amount.
D) fall by an equal amount.

Question

Quizplus · Accepted Answer

When the government collects taxes to pay for expenditures of an equal amount, they are not creating any new money. Hence, there is no change in the money supply or bank reserves. Therefore, the correct answer is (A) bank reserves are unaffected.

If the Government Collects Taxes to Pay for Expenditures of an Equal