If the federal government replaced the current income tax with a consumption tax
A)the prices of corporate and municipal bonds would rise.
B)the prices of corporate and municipal bonds would fall.
C)the prices of corporate bonds would rise, while the prices of municipal bonds would fall.
D)the prices of corporate bonds would fall, while the prices of municipal bonds would rise.

Question

Quizplus · Accepted Answer

A consumption tax would make municipal bonds less attractive because their tax-exempt status would no longer provide a benefit, leading to a fall in their prices. Conversely, corporate bonds would become more attractive as the tax advantage of municipal bonds diminishes, leading to a rise in their prices.

If the Federal Government Replaced the Current Income Tax with a Consumption