-Refer to Exhibit 11-2.At point B,if we cut tax rates slightly,tax revenues will
A) increase.
B) decrease.
C) will not change.
D) immediately drop to zero.

Question

-Refer to Exhibit 11-2.At point B,if we cut tax rates slightly,tax revenues will
A) increase. 
B) decrease. 
C) will not change. 
D) immediately drop to zero.

Quizplus · Accepted Answer

At point B, which is on the right side of the Laffer Curve peak, a slight cut in tax rates would lead to an increase in tax revenues. This is because the economy is in the "prohibitive range" where high tax rates discourage work and investment, reducing the taxable base. Lowering taxes slightly can stimulate economic activity, expanding the tax base and leading to higher overall tax revenues.