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What effect would reducing income tax rates have on the interest rates of municipal bonds? ○ A. Interest rates would fall because the reduction in income tax rates would make the tax-exempt privilege for municipal bonds less valuable and reduce the demand for municipal bonds. ○ B. Interest rates would fall because Treasury securities are now less valuable and more people will want to hold municipal bonds. ○ C. Interest rates would rise because the reduction in income tax rates would make the tax-exempt privilege for municipal bonds less valuable and reduce the demand for municipal bonds. ○ D. Interest rates would rise because Treasury securities are now less valuable and more people will want to hold municipal bonds. Would interest rates of Treasury securities be affected by the tax rate change? A. Yes, because the reduction in the tax-exempt privilege in municipal bonds would raise the relative value of Treasury securities, making Treasury securities more desirable. OB. Yes, because the increase in interest rates would increase the desire to hold more municipal bonds and less Treasury securities. ○ C. No, there would be no impact on the market for Treasury securities. OD. Yes, because municipal bonds are less risky than Treasury securities, the demand for Treasury securities will decrease.

What effect would reducing income tax rates have on the interest rates of municipal bonds? ○ A. Interest rates would fall because the reduction in income tax rates would make the tax-exempt privilege for municipal bonds less valuable and reduce the demand for municipal bonds. ○ B. Interest rates would fall because Treasury securities are now less valuable and more people will want to hold municipal bonds. ○ C. Interest rates would rise because the reduction in income tax rates would make the tax-exempt privilege for municipal bonds less valuable and reduce the demand for municipal bonds. ○ D. Interest rates would rise because Treasury securities are now less valuable and more people will want to hold municipal bonds. Would interest rates of Treasury securities be affected by the tax rate change? A. Yes, because the reduction in the tax-exempt privilege in municipal bonds would raise the relative value of Treasury securities, making Treasury securities more desirable. OB. Yes, because the increase in interest rates would increase the desire to hold more municipal bonds and less Treasury securities. ○ C. No, there would be no impact on the market for Treasury securities. OD. Yes, because municipal bonds are less risky than Treasury securities, the demand for Treasury securities will decrease.

Principles of Economics 2e
Principles of Economics 2e
2nd Edition
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:Steven A. Greenlaw; David Shapiro
Chapter30: Government Budgets And Fiscal Policy
Section: Chapter Questions
Problem 48CTQ: If the government gives a 300 tax cut to everyone in the country, explain the mechanism by which...
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What effect would reducing income tax rates have on the interest rates of municipal bonds? ○ A. Interest rates would fall because the reduction in income tax rates would make the tax-exempt privilege for municipal bonds less valuable and reduce the demand for municipal bonds. ○ B. Interest rates would fall because Treasury securities are now less valuable and more people will want to hold municipal bonds. ○ C. Interest rates would rise because the reduction in income tax rates would make the tax-exempt privilege for municipal bonds less valuable and reduce the demand for municipal bonds. ○ D. Interest rates would rise because Treasury securities are now less valuable and more people will want to hold municipal bonds. Would interest rates of Treasury securities be affected by the tax rate change? A. Yes, because the reduction in the tax-exempt privilege in municipal bonds would raise the relative value of Treasury securities, making Treasury securities more desirable. OB. Yes, because the increase in interest rates would increase the desire to hold more municipal bonds and less Treasury securities. ○ C. No, there would be no impact on the market for Treasury securities. OD. Yes, because municipal bonds are less risky than Treasury securities, the demand for Treasury securities will decrease.
Transcribed Image Text:What effect would reducing income tax rates have on the interest rates of municipal bonds? ○ A. Interest rates would fall because the reduction in income tax rates would make the tax-exempt privilege for municipal bonds less valuable and reduce the demand for municipal bonds. ○ B. Interest rates would fall because Treasury securities are now less valuable and more people will want to hold municipal bonds. ○ C. Interest rates would rise because the reduction in income tax rates would make the tax-exempt privilege for municipal bonds less valuable and reduce the demand for municipal bonds. ○ D. Interest rates would rise because Treasury securities are now less valuable and more people will want to hold municipal bonds. Would interest rates of Treasury securities be affected by the tax rate change? A. Yes, because the reduction in the tax-exempt privilege in municipal bonds would raise the relative value of Treasury securities, making Treasury securities more desirable. OB. Yes, because the increase in interest rates would increase the desire to hold more municipal bonds and less Treasury securities. ○ C. No, there would be no impact on the market for Treasury securities. OD. Yes, because municipal bonds are less risky than Treasury securities, the demand for Treasury securities will decrease.
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