Refer to the graph. Critics of supply-side economics would argue that tax rates are currently between
A) b and d and that a decrease in tax rates will decrease tax revenues.
B) 0 and b and that a decrease in tax rates will decrease tax revenues.
C) 0 and b and that a decrease in tax rates will increase tax revenues.
D) b and d and that a decrease in tax rates will increase tax revenues.

Question

Refer to the graph. Critics of supply-side economics would argue that tax rates are currently between
A) b and d and that a decrease in tax rates will decrease tax revenues. 
B) 0 and b and that a decrease in tax rates will decrease tax revenues. 
C) 0 and b and that a decrease in tax rates will increase tax revenues. 
D) b and d and that a decrease in tax rates will increase tax revenues.

Quizplus · Accepted Answer

Critics of supply-side economics argue that tax cuts primarily benefit the wealthy and do not necessarily lead to increased economic growth or revenue for the government. They would argue that the current tax rates are already below the optimal level for revenue collection and that a further decrease in tax rates would result in a decrease in tax revenues. This is reflected by the graph, which shows that the revenue-maximizing tax rate is somewhere between 0 and b, and that decreasing tax rates beyond that point results in lower revenue collections.

Refer to the Graph