Question

__________ shows the relationship between Government revenue and tax rates.

• A.
  Phillips curve
• B.
  Laffer curve

Answer 1

The correct option is B

Laffer curve
The Laffer Curve describes the relationship between tax rates and total tax revenue, with an optimal tax rate that maximizes total government tax revenue.

If taxes are too high along the Laffer Curve, then it will discourage the taxed activities, such as work and investment enough to actually reduce total tax revenue. In this case, cutting tax rates will both stimulate economic incentives and increase tax revenue.

If taxes are too low, there is not enough revenue for the government to inspire developmental activities necessary for the economy.