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In Canada, interest income on all bonds (Governemtn of Canada, provincial, municipal, corporate) is subject to tax. If the federal government announced that interest income
In Canada, interest income on all bonds (Governemtn of Canada, provincial, municipal, corporate) is subject to tax. If the federal government announced that interest income on its bonds would be exempt from income tax, what would happen to the interest rates on federal government bonds, increase or decrease? What effect would the change have on non-federal government bonds? Illustrate the answers by drawing the appropriate supply-and-demand diagrams.
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