The Laffer curve shows that increasing ________ increases ________ when ________ low.
A)tax revenue; potential GDP; tax revenue is
B)the tax rate; tax revenue; the tax rate is
C)potential GDP; tax revenue; tax revenue is
D)government outlays; the budget deficit; government expenditure is
E)investment; potential GDP; the interest rate is

Question

Quizplus · Accepted Answer

The Laffer curve shows that increasing the tax rate initially increases tax revenue, but eventually reaches a point where further increases in the tax rate lead to a decrease in tax revenue. This occurs when the tax rate is high enough that it discourages economic activity, reduces incentives to work and invest, and leads to tax avoidance and evasion. Therefore, option B is the correct answer as it correctly identifies the variables and the relationship between them.

The Laffer Curve Shows That Increasing ________ Increases ________ When

The Laffer Curve Shows That Increasing Increases When