ECON 161A Lecture Notes - Lecture 4: Nissan L Engine, Yield Curve, Risk Premium
Document Summary
Review: talked about the risk premium which represents the different interest rates that consumers pay. In general, the interest rate on municipal bonds is less than federal bonds because muni"s aren"t taxed. What might prevent a city or county from paying back there bonds?) Federal gov. can create new money by buying bonds, or raise taxes in order to pay off bonds; which is why they don"t default. If the state raises taxes, people can just move out and pay less somewhere else. States were receiving less income tax and other tax revenues during the recession so the municipalities are declining revenue and are less likely to repay debt, the increase in interest in muni"s is because state are collecting less taxes. Relationship between bonds with similar maturities but given out by different entities ^^^ Bond yields on gov. securities: t bill, t note, 10 yr t bond, and 30 yr t bond.
