If Their Only Concern Were the Cost of Issuing Municipal

question 118

Multiple Choice

If their only concern were the cost of issuing municipal debt, how would you expect the mayors of most U.S. cities to respond to a revenue-neutral change in the federal income tax that sharply lowered the top marginal tax rate?

• A) Favorably, since this will significantly increase the demand for municipal bonds.
• B) Unfavorably, the demand for municipal bonds will fall and their yields will increase.
• C) Favorably, the price of municipal bonds should increase and their yields fall.
• D) No reaction, this should have no impact on municipal bonds at all.

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