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Initially, the interests received on both government bonds and corporate bonds were tax-free. Now, the government imposes a tax on the interest on the corporate
Initially, the interests received on both government bonds and corporate bonds were tax-free. Now, the government imposes a tax on the interest on the corporate bonds. How will this policy affect the interest rate in the corporate bond market relative to the interest rate in the tax-free government bond market? Briefly explain your answer with demand-supply diagrams.
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