The correct answer would be, will increase.
Suppose that in a country people gain more confidence in the banking system and so hold relatively less currency and more deposits. As a result, bank reserves will increase.
Explanation:
When people have more confidence on the policies of a bank, they prefer to put their money in banks rather than holding cash with themselves. Due to this the bank reserves increase, as more and more people deposit their money in the banks.
When banks get more money, and the bank reserves increase, it also has an overall impact on the growth of the economy, because due to the less circulation of money and more reserves in banks, the currency of that country strengthens and the value of currency also increases. As a result, inflation will also decrease.
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