Suppose that the government reduces corporate taxes, thereby increasing the net expected profit from investment projects...

Suppose that the government reduces corporate taxes, thereby increasing the net expected profit from investment projects run by businesses. Adjust the Supply and demand graph below to illustrate how this corporate tax cut affects the bond market.

Expert Solution

An increase in the profit in the market will increase the demand for the bonds and that will shift the demand curve to the right, it will increase the price of the bonds and decrease the interest rate. (when you are making the graph pay attention what is on the vertical axis, if its the price shift the demand curve to the right if there is interest shift it to the left. )

Rahul Sunny answered 2 years ago

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