The Laffer curve is a graph of the relationship between tax rates and:
A) real GDP.
B) total tax revenues.
C) government spending.
D) inflation.

Question

Quizplus · Accepted Answer

The Laffer curve shows that as tax rates increase, total tax revenues initially rise but eventually reach a point where further increases in tax rates lead to a decrease in total tax revenues. This occurs because high tax rates can discourage work and investment, leading to a reduction in taxable income and ultimately reducing the government's ability to collect taxes. Thus, the Laffer curve is a tool often used to analyze the tradeoff between tax rates and total tax revenues.

The Laffer Curve Is a Graph of the Relationship Between