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    Question

    The Laffer curve is a relationship

    between
    A Unemployment and inflation Correct Answer Incorrect Answer
    B Revenue and expenditure Correct Answer Incorrect Answer
    C Tax rate and tax revenue Correct Answer Incorrect Answer
    D Economic development and environment Correct Answer Incorrect Answer

    Solution

    Laffer curve explains the relationship between tax rate and tx revenue. According to the Laffer curve, at lower as well as higher rate of tax, the tax revenue is low. Tax revenue is high at the optimal rate of tax. Lower tax leads to lower tax collection. At higher rate of tax, there is high tax evasion and tax revenue is also low. At an optimal rate of tax, there is no tax evasion and so the tax revenue reaches the maximum.

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