If the federal government were to offer larger tax breaks to firms based on the

Question

If the federal government were to offer larger tax breaks to firms based on the purchase of new equipment for businesses, all other factors constant, we would expect to see: 24) (2pts) the equilibrium price and quantity of bonds to both decrease. the equilibrium price of bonds to increase and the equilibrium quantity of bonds to decrease. the equilibrium price of bonds to decrease and the equilibrium quantity of bonds to increase. the equilibrium price and quantity of bonds to both increase. 25) (2pts) Between a 20-year AAA-rated bond from Pfizer and a 20-year AAA-rated municipal bond from the state of Colorado, which would pay the lower interest rate and why? The Pfizer bond because of lower risk. The municipal bond because of more favorable tax treatment. The Pfizer bond because of more favorable tax treatment. The municipal bond because of lower risk. 26) Between a 20-year corporate bond from GE and a 20-year US Treasury Bond, which would pay the 2pts) lower interest rate and why? The corporate bond because of more favorable tax treatment.. The Treasury bond because of lower risk. The Treasury bond because of more favorable tax treatment. The corporate bond because of lower risk

Explanation / Answer

24. 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 that the bond supply curve will shift to the right . As a result, the equilibrium price of binds to decrease and the equilibrium quantity of bonds to increase. Hence, option (C) is correct.

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