Suppose that a new bond rating service is established that specializes in rating municipal bonds that had not previously been rated.The likely result would be
A) a shift to the left in the demand curve for municipal bonds.
B) a shift to the left in the supply curve for municipal bonds.
C) an increase in the equilibrium interest rate.
D) a decrease in the equilibrium interest rate.

Question

Quizplus · Accepted Answer

The establishment of a new bond rating service that specializes in rating municipal bonds that had not previously been rated will increase the information available to investors about these bonds, which will increase confidence in investing in these bonds. This will result in an increase in demand for municipal bonds, which will shift the demand curve to the right. This increase in demand will result in a decrease in the equilibrium interest rate. Therefore, the correct answer is D, a decrease in the equilibrium interest rate.

Suppose That a New Bond Rating Service Is Established That