The curve that reflects the view that when tax rates are too high, lowering them not only creates greater incentive for suppliers to increase production, but ends up generating higher tax revenues, is known as the:
A) Phillips curve.
B) Laffer curve.
C) Engel curve.
D) Rational expectations curve.
E) consumption curve.

Question

Quizplus · Accepted Answer

The Laffer curve was first proposed by economist Arthur Laffer, and shows that at some point increasing tax rates will actually lead to a decrease in tax revenues due to reduced incentives for suppliers to produce and lower economic growth. Lowering tax rates beyond this point can actually lead to increased tax revenues as the incentive to produce and invest grows.

The Curve That Reflects the View That When Tax Rates