WBCS.LIVE practice question

The 'Laffer Curve' demonstrates the relationship between which two economic variables?

Solve this multiple-choice question and check the correct answer with its explanation below.

Answer options

  1. Inflation and Unemployment
  2. Tax rates and Tax revenue
  3. Economic growth and Environmental degradation
  4. Income inequality and GDP

Correct answer and explanation

Correct answer: Tax rates and Tax revenue

Explanation: āœ… Correct Answer: B) Tax rates and Tax revenue šŸ“š Explanation: The Laffer Curve, developed by supply-side economist Arthur Laffer, visually demonstrates the theoretical relationship between taxation rates and the resulting government tax revenue. It argues that there is an optimal tax rate that maximizes revenue, and increasing taxes beyond this peak point actually decreases total revenue because it heavily disincentivizes work and investment.