The Laffer curve shows a relationship between
A) inflation rates and unemployment rates.
B) interest rates and investment spending.
C) price level and real Gross Domestic Product (GDP).
D) tax rates and tax revenues.

Question

Quizplus · Accepted Answer

The Laffer curve shows the relationship between tax rates and tax revenue. It suggests that as tax rates increase from zero, tax revenue also increases, but there comes a point where further increases in tax rates will lead to a decrease in tax revenue as people's incentives to work and invest decrease. Therefore, the Laffer curve helps policymakers determine the optimal tax rate at which tax revenue is maximized.

The Laffer Curve Shows a Relationship Between