The global economy is under significant stress to include U.S. state and local governments given expectation...

The global economy is under significant stress to include U.S. state and local governments given expectation of lower income taxes and lesser fees and tolls.

a) How should expectations of financial stress impact the yield of municipal debt given actions by investors to include individuals and mutual funds?

b) whether the supply or demand curve within a loanable funds framework (% and $) should change and in what direction. Should state/local governments expect to pay more or less to borrow?

Expert Solution

Since the recession kind of economy due to Coronavirus has been unprecedented the Us Fed will sharply reduce interest rates and thus the yield to maturity of municipal debt instruments will fall causing its prices to increase. Hence for mutual funds amd retail investors it would be costlier to buy them as the net assets value also increases.

Lowered interest rates means an expansionary monetary policy and thus supply lf loanable funds rises causing higher liquidity in market an dhence the aggregate demand curve shifts rightwards in AS AD framework or LM curve shifts rightwards in IS LM framework. Also since government announces fiscal stimulus packages it will naturally borrow more from banks pushing up interest rates higher again on overnight basis amd thus net amount paid back will be more.

PLEASE UPVOTE INCASE YOU LIKED THE ANSWER WILL BE ENCOURAGING FOR US THANKYOU VERY MUCH ALL THE BEST IN FUTURE.

Rahul Sunny answered 7 months ago

What was the impact of federal, state, and local governments on the American economy and civil...

What was the impact of federal, state, and local governments on the American economy and civil rights in the 1950s.

What is the objective of financial reporting by state and local governments?

Why are local governments subordinate to the state government in which they reside?

Part I: Description of the State of the U.S. Economy Describe the state of the U.S....

Part I: Description of the State of the U.S. Economy Describe the state of the U.S. Economy for the years between 2006 and now in terms of macroeconomic measures discussed in the course (GDP, unemployment, and inflation rates). Use data from the National Bureau of Economic Research (NBER), http://www.recovery.gov, and other government agencies and departments, such as Department of Labor (Bureau of Labor Statistics), Department of Commerce (Bureau of Economic Analysis), etc. and present the data in charts, graphs, or...

what have governments done to mitigate the negative effects of caronavirus on the global economy?

Are most aspects of elections under the control of state governments or the federal government?

Are most aspects of elections under the control of state governments or the federal government?What do states decide in terms of elections?

what the governments (Local, State and Federal) are doing to address the economic conditions created by...

what the governments (Local, State and Federal) are doing to address the economic conditions created by the pandemic covid 19. First identify a current government policy you are aware of and identify its components. This is the “macro” overview. Then, describe how this policy, remember, it can be a local (city/county), state or federal, is intended to impact a specific industry, firms and/or individuals. This is the “micro” overview.

State and Local Governments and Aggregate Demand. The aggregate demand curve shifts to the right if...

State and Local Governments and Aggregate Demand. The aggregate demand curve shifts to the right if A. the money supply decreases B. the price level increases C. taxes increase D. state governments increase their spending

Businesses, banks, and the federal, state and local governments rely on the ability to access funding...

Businesses, banks, and the federal, state and local governments rely on the ability to access funding to expand and pay its bills. Please explain how and why do they do this and what were some of the issues that started in 2007 that later on became the great economic crisis and how could it have been avoided.

Suppose a state is considering three different types of fiscal limits for local governments in the...

Suppose a state is considering three different types of fiscal limits for local governments in the state--a maximum property tax rate, a limit that property tax revenue may not increase more than population and inflation rate together, or a limit that spending may not increase more than five percent. In each case, the limit may be exceeded by majority vote. Which limit is most restrictive and why? Contrast the three in terms of the sources of allowed increases in taxes...

Question