To increase tax revenue, the U.S. government in 1932 imposed a...

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. From

this perspective, was the check tax a good

policy to implement in the middle of the

Great Depression?