One idea to curb potentially destabilizing international movements of capital has been devised by James Tobin, a Nobel Prize-winning economist. He proposes putting a small tax on foreign exchange transactions. He claims that his “Tobin tax” would make short-term speculation more costly while having little effect on long-term investment.

a. Why would the Tobin tax have a disproportionate impact on short-term investments?

b. Is the Tobin tax likely to accomplish its objective? Explain.