Question

In 1932, the u.s. government imposed a two-cent tax on checks written on deposits in bank accounts. this action would be expected to ______ the currency–deposit ratio and ______ the money supply.

Answer 1

In 1932, the u.s. government imposed a two-cent tax on checks written on deposits in bank accounts. this action would be expected to increase the currency–deposit ratio and decrease the money supply. Tax are basically meant to defers the writing of checks. Hence people will be unwilling to pay tax and does not want to write check which will increase their bank balance and hence currency deposit ratio will rise and money supply will decrease in the economy.