Suppose that in a certain nation the flat income tax rate of 30 percent rises to 35 percent and as a result the tax base falls from $400 billion to $375 billion.As a result,tax revenues __________,indicating the nation is on the __________ portion of its Laffer curve.
A) rise; upward-sloping
B) rise; downward-sloping
C) fall; upward-sloping
D) fall; downward-sloping

Question

Quizplus · Accepted Answer

The tax revenue before the increase is $400 billion * 30% = $120 billion. After the increase, it is $375 billion * 35% = $131.25 billion. Since the revenue increased, the nation is on the upward-sloping portion of its Laffer curve, where tax rate increases lead to higher tax revenues.

Suppose That in a Certain Nation the Flat Income Tax