The Laffer curve indicates thatA) when tax rates are low, a decrease in tax rates is likely to increase tax revenues.B) when tax rates are high, an increase in tax rates is likely to a decrease in tax revenues.C) tax revenue will always increase when tax rates are increased.D) tax revenue will always decrease when tax rates are lowered.

Question

The Laffer curve indicates thatA)  when tax rates are low, a decrease in tax rates is likely to increase tax revenues.B)  when tax rates are high, an increase in tax rates is likely to a decrease in tax revenues.C)  tax revenue will always increase when tax rates are increased.D)  tax revenue will always decrease when tax rates are lowered.

Mitch Nemecek · Accepted Answer

Final Answer : B, Explanation :  The Laffer curve suggests that there is an optimal tax rate that maximizes revenue. Beyond this rate, increasing taxes can lead to a decrease in revenue due to decreased economic activity.

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