The Laffer curve is a graphical representation of the relationship between tax rates and tax revenue. It shows that as tax rates increase beyond a certain point, tax revenue actually decreases because people are discouraged from working and investing. The concept is named after economist Arthur Laffer.

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The Laffer Curve Is

Question 108

Multiple Choice

The Laffer curve is:

A) an assertion that increases in government spending and decreases in taxes are largely offset by increases in savings.
B) an illustration of the relationship between the price level and real output.
C) an illustration of the relationship between tax rates and tax revenues.
D) an illustration of the relationship between government spending and taxes.
E) an illustration of real gross domestic product (GDP) over time.

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