If an economist recommends that the government reduce the tax rate in order to increase tax revenues (based on the Laffer curve),she is implicitly assuming that the economy is currently operating at a point
A) inside the Laffer curve.
B) outside the Laffer curve.
C) on the upward-sloping portion of the Laffer curve.
D) on the downward-sloping portion of the Laffer curve.
E) where tax revenues are maximized.

Question

Quizplus · Accepted Answer

The Laffer curve illustrates the relationship between tax rates and tax revenue, suggesting that there is an optimal tax rate that maximizes revenue. If reducing tax rates is recommended to increase revenue, it implies the economy is on the downward-sloping portion of the curve, where higher tax rates lead to lower revenue.

If an Economist Recommends That the Government Reduce the Tax