Question

Q. Match the following:

List A (Type of Curve)	List B ( Relation)
1. Laffer Curve	Economic Growth and Inequality
2. Phillips Curve	Rate of taxation and Tax Revenue
3. Lorenz Curve	Inflation and Unemployment
4. Kuznets Curve	Income inequality and Population

Select the correct answer using the codes given below:

• A. 1-b; 2-c; 3-d; 4-a
• B. 1-a; 2-b; 3-c; 4-d
• C. 1-b; 2-d; 3-c; 4-a
• D. 1-c; 2-b; 3-a; 4-d

Answer 1

The correct option is A 1-b; 2-c; 3-d; 4-a

Explanation:

• The Laffer curve shows the relationship between tax rates and tax revenue collected by governments. The curve suggests that, as taxes increase from low levels, tax revenue collected by the government also increases. It also shows that tax rates increasing after a certain point would cause people not to work as hard or not at all, thereby reducing tax revenue. Eventually, if tax rates reached 100%, then all people would choose not to work because everything they earned would go to the government.
• Phillips Curve is the inverse relationship that exists between the unemployment rate and inflation.
• A Lorenz curve is a graphical representation of income inequality or wealth inequality. The graph plots percentiles of the population on the horizontal axis according to income or wealth.
• Kuznets Curve shows the relationship between economic growth and income inequality. It is in the shape of an inverted U. It signifies that economic growth initially leads to a rise in inequality but later decreases.