If the federal government were to offer larger tax breaks on the purchase of new equipment for businesses, all other factors constant, we would expect to see the:

Question

Quizplus · Accepted Answer

When the federal government offers larger tax breaks on the purchase of new equipment for businesses, it encourages businesses to invest more in new equipment. This increases their profitability and financial stability, which, in turn, makes them more creditworthy. As a result, businesses' demand for capital increases, and they are more likely to issue bonds to finance their investments. This increased supply of bonds puts downward pressure on bond prices and upward pressure on bond yields, causing the bond supply curve to shift right.

If the Federal Government Were to Offer Larger Tax Breaks