In 1932, the U.S. government imposed a 2-cent tax on cheques written on deposits in bank accounts. This action would be expected to _____ the currency-deposit ratio and _____ the money supply.
A)increase; increase
B)increase; decrease
C)decrease; increase
D)decrease; decrease

Question

Quizplus · Accepted Answer

The tax on cheques would likely lead people to use cash more to avoid the tax, increasing the currency-deposit ratio. This would decrease the money supply as more money is held as currency rather than deposits, which are part of the money supply.