The curve that assumes that there is some tax rate beyond which the supply response is large enough to lead to a decrease in tax revenue for further increases in the tax rate is the
A) aggregate supply curve.
B) Lucas supply curve.
C) aggregate production function.
D) Laffer curve.

Question

Quizplus · Accepted Answer

The description matches the Laffer curve, which shows the relationship between tax rates and government revenue. It suggests that as tax rates increase beyond a certain point, people become discouraged from working and firms are less willing to invest, leading to a decrease in taxable income and therefore a decrease in government revenue.

The Curve That Assumes That There Is Some Tax Rate