When a municipal bond is given tax-free status,the demand for Treasury bonds shifts ________,and the interest rate on Treasury bonds ________.
A) leftward; rises
B) leftward; falls
C) rightward; rises
D) rightward; falls

Question

Quizplus · Accepted Answer

When a municipal bond is given tax-free status, it becomes more attractive to investors, leading to a decrease in demand for Treasury bonds (shift leftward). As demand for Treasury bonds decreases, the price of these bonds falls, causing the interest rate (which moves inversely to bond prices) to rise.

When a Municipal Bond Is Given Tax-Free Status,the Demand for Treasury