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To increase tax revenue, the U.S. government in 1932 imposed a 2-cent tax on checks written on bank account deposits. (In today's dollars, this tax would amount to about 34 cents per check.)
a. How do you think the check tax affected the currency-deposit ratio? Explain.
b. Use the model of the money supply under fractional-reserve banking to discuss how this tax affected the money supply.
c. Many economists believe that a falling money supply was in part responsible for the severity of the Great Depression of the 1930s. Fromthis perspective, was the check tax a good policy to implement in the middle of the Great Depression?
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