If income tax rates were lowered, then ________.
A) the interest rate on tax-exempt bonds would fall
B) the interest rate on U.S. Treasury bonds would rise
C) the interest rate on tax-exempt bonds would rise
D) the price of Canada bonds would fall

Question

Quizplus · Accepted Answer

When income tax rates are lowered, the after-tax return on tax-exempt bonds becomes relatively more attractive, resulting in an increase in their demand and a subsequent rise in their interest rates. Therefore, the interest rate on tax-exempt bonds would rise.

If Income Tax Rates Were Lowered, Then ________