The Laffer curve studies the relationship between
A) open market operations and the interest rate.
B) taxes and the real interest rate.
C) tax rates and tax revenues.
D) monetary policy and tax revenues.

Question

Quizplus · Accepted Answer

The Laffer curve is a graphical representation of the relationship between tax rates and tax revenues. It shows that as tax rates increase, tax revenues initially increase, but eventually reach a point where increasing tax rates further will actually decrease tax revenues. This point is known as the revenue-maximizing rate of taxation. The Laffer curve has important implications for tax policy and the trade-off between generating revenue and promoting economic growth.

The Laffer Curve Studies the Relationship Between