When do transaction log files release and reset to a smaller size?

I am doing a full backup of a SIMPLE logged database that used to be set as FULL, yet the transaction log does not reduce in size. It has grown to be 300MB.
1. Is this normal?
2. How and when do transaction logs purge/reset themselves to their smallest size?
3. What do I have to do to manage them?
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Transaction log files are managed by right clicking on the database in sql management studio and choosing properties.
Choose Files and then find the item in File Type as "Log"
Click the "..." in the AutoGrowth tab.  

From there you can manage the growth properties of the database.  

To shrink it manually, if you wish to, you can Right Click the DB > Tasks > Shrink > Files.

It will only shrink to the smallest size it originally was created.

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Anthony PerkinsCommented:
Contrary to popular belief the Transaction Log is an integral part of the database even when set to Simple Recovery Model.

So what you should do is set it to the appropriate size for your use and not shrink it down every time.  It will only have to increase again.  Every time it does that you will take a hit in performance.
To further elaborate on acperkins' provided insight, you will suffer the performance hit during the shrink/expand operations themselves in addition to fragmenting the physical file on disk making accessing it slower.
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Microsoft SQL Server 2005

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