If Municipal Bonds Were to Lose Their Tax-Free Status,then the Demand

question 31

Multiple Choice

If municipal bonds were to lose their tax-free status,then the demand for Treasury bonds would shift ________,and the interest rate on Treasury bonds would ________.

• A) rightward; fall
• B) rightward; rise
• C) leftward; fall
• D) leftward; rise

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Definitions:

Interest Rate

The percentage of principal charged by the lender for the use of its money or the rate earned on investments.

Loan

A sum of money that is borrowed, often from a financial institution, which is expected to be paid back with interest.

Annual Interest Rate

The percentage increase in money that borrowers pay lenders over a year, typically applied to loans and savings.

Interest

The charge for borrowing money or the return for lending money, expressed as a percentage of the loan amount.