The Laffer curve illustrates that

Question

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The Laffer curve suggests that as tax rates increase, tax revenue initially increases, but at some point, the disincentive effect of higher tax rates may discourage economic activity, leading to a decrease in tax revenue. Therefore, high tax rates could lead to lower tax revenues, as explained in option A. Option B and D are incorrect, as there is no guarantee that lowering tax rates will always increase or decrease tax revenue. Option C is also incorrect, as it assumes that a higher tax rate will always lead to an increase in labor supply, which is not necessarily true.

The Laffer Curve Illustrates That