Assume the Federal Government Collects $20 Billion in Taxes and Spends

Multiple Choice

Assume the federal government collects $20 billion in taxes and spends them on the public. If the money multiplier is 2.5, bank reserves

A) and the money supply still increase by only $20 billion.
B) increase by $20 billion and the money supply increase by $50 billion.
C) and the money supply both increase by $50 billion.
D) and the money supply are unaffected.