How would you expect the mayors of most U.S. cities to respond to a proposed significant reduction in U.S. income taxes?
A) Favorably, since this will significantly increase the demand for municipal bonds
B) Unfavorably, the demand for municipal bonds will fall and their yields will increase
C) Favorably, the price of municipal bonds should increase and their yields fall
D) No reaction, this should have no impact on municipal bonds at all

Question

Quizplus · Accepted Answer

The mayors of most U.S. cities would likely respond unfavorably to a proposed significant reduction in U.S. income taxes because this would decrease the demand for municipal bonds, which are issued by cities to finance public projects. As a result, the yields on these bonds would increase, making it more expensive for cities to borrow money. Additionally, cities may face budgetary challenges if federal funding for infrastructure projects and social services is reduced as a result of the tax cuts.

How Would You Expect the Mayors of Most U