An increase in marginal tax rates would likely have the effect of ________ the demand for municipal bonds and ________ the demand for U.S.government bonds.
A) increasing; increasing
B) increasing; decreasing
C) decreasing; increasing
D) decreasing; decreasing

Question

Quizplus · Accepted Answer

An increase in marginal tax rates makes tax-exempt municipal bonds more attractive relative to taxable bonds, increasing their demand. Conversely, the demand for U.S. government bonds, which are taxable, would likely decrease as investors seek the tax advantages of municipal bonds.

An Increase in Marginal Tax Rates Would Likely Have the Effect