1. According to the Baumol-Tobin model, what determines how often people go to

the bank? What does this decision have to do with money demand?

2. In what way does the existence of near money complicate the conduct of

monetary policy? How has the Federal Reserve responded to this complication?

3. The money supply fell from 1929 to 1933 because both the currency-deposit

ratio and the reserve-deposit ratio increased. Use the model of the money supply

and the data in Table 19-1 to answer the following hypothetical questions about

this episode.

a. What would have happened to the money supply if the currency-deposit ratio

had risen but the reserve-deposit ratio had remained the same?

b. What would have happened to the money supply if the reserve-deposit ratio had

risen but the currency-deposit ratio had remained the same?

c. Which of the two changes was more responsible for the fall in the money

supply?