the economics of money, banking, and financial markets

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42. 
    

    The interest rate on tax-exempt bonds rises relative to the interest rate on U.S. Treasury
    securities when ____.
    A) income tax rates are raised
    B) tax-exempt bonds become more widely traded
    C) corporate bonds become riskier
    D) income tax rates are lowered
    Answer: D
    Diff: 3 Type: MC Page Ref: 117 - 118
    Skill: Recall
    Objective List: 6.1 Describe how default risk, liquidity, and tax considerations affect interest
    rates

    
    


43. 
    

    Tax-exempt bond interest rates increase relative to corporate bond interest rates when
    ____.
    A) income taxes are increased
    B) corporate bonds become riskier
    C) U.S. Treasury securities become more widely traded
    D) there is a major default in the tax-exempt bond market
    Answer: D
    Diff: 3 Type: MC Page Ref: 117 - 118
    Skill: Recall
    Objective List: 6.1 Describe how default risk, liquidity, and tax considerations affect interest
    rates

    
    


44. 
    

    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
    Answer: C
    Diff: 2 Type: MC Page Ref: 117 - 118
    Skill: Applied
    Objective List: 6.1 Describe how default risk, liquidity, and tax considerations affect interest
    rates

    
    


45. 
    

    If income tax rates were lowered, then ____.
    A) the prices of tax-exempt bonds would fall
    B) the interest rate on tax-exempt bonds would fall
    C) the interest rate on U.S. Treasury bonds would rise
    D) the prices of tax-exempt bonds would rise
    Answer: A
    Diff: 2 Type: MC Page Ref: 117 - 118
    Skill: Applied
    Objective List: 6.1 Describe how default risk, liquidity, and tax considerations affect interest
    rates