To increase tax revenue, the us 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 economist 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?

A) by introducing the check tax, the government actually made the people use more cash and less checks in order to avoid paying the tax. This lead to an increase in the currency deposit ratio, which means that people have more cash and less money deposited in the banks.

B) since the currency deposit ration increased, banks had less money to borrow, which in turn decreased the money multiplier and the banks' ability to create money.

C) carrying out this policy was like engaging in a contractionary monetary policy which was a terrible idea. The government should have done the opposite and expand the money supply and the banks' ability to create money in order to boost economic growth.

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