According to the Laffer curve, an increase in the tax rate will increase tax revenue
A) if the economy is on the positively sloped section of the curve.
B) if the economy is on the negatively sloped section of the curve.
C) if the economy is at the farthest point out on the curve.
D) no matter the location of the economy on the curve.

Question

Quizplus · Accepted Answer

The Laffer curve shows the relationship between tax rates and tax revenue. When tax rates are at 0%, the government collects no revenue. As tax rates increase, tax revenue also increases up to a point, known as the peak of the curve. Beyond this point, further tax rate increases lead to a decrease in tax revenue as people have less incentive to work and invest. Therefore, an increase in tax rates will increase tax revenue only if the economy is on the positively sloped section of the curve, which is before the peak. Choice A is the correct answer as it describes this situation.

According to the Laffer Curve, an Increase in the Tax