The Laffer curve shows the relationship between
A) aggregate supply and aggregate demand.
B) unemployment and inflation.
C) consumer spending and business spending.
D) tax rates and tax revenues.

Question

Quizplus · Accepted Answer

The Laffer curve illustrates the relationship between tax rates and tax revenues. It suggests that as tax rates increase, tax revenues initially increase but eventually reach a point where further increases in tax rates lead to a decrease in tax revenues as the higher rates discourage economic activity and therefore decrease the tax base. The curve is named after economist Arthur Laffer, who popularized this concept in the 1970s.

The Laffer Curve Shows the Relationship Between