Question

True/False 1.Income Effect shows that a higher level of income causes the demand for money at...

True/False

1.Income Effect shows that a higher level of income causes the demand for money at each interest rate to increase and the demand curve to shift to the left

T/F

2.Interest payments on municipal bonds are not exempt from federal income taxes

T/F

3.Bonds with identical risk, liquidity, and tax characteristics may have different interest rates because the time remaining to maturity is different

T/F

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Answer #1

1)The statement is false. A higher level of income causes the demand for money at each interest rate to increase and the demand curve to shift to the right.

2) The statement is false. Interest payments on municipal bonds are exempt from federal income taxes. Exempt status is based on reciprocal immunity.

3) The statement is true. Bonds with identical risk, liquidity, and tax characteristics may have different interest rates because the time remaining to maturity is different.

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