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    Question

    According to the Laffer curve, a cut in tax rates

    A will always increase tax revenue Correct Answer Incorrect Answer
    B will always decrease tax revenues Correct Answer Incorrect Answer
    C will increase tax revenues if the economy is on the positively sloped portion of the Laffer curve, and reduce tax revenues if the economy is on the negatively sloped portion of the Laffer curve Correct Answer Incorrect Answer
    D will decrease tax revenues if the economy is on the positively sloped portion of the Laffer curve, and increase tax revenues if the economy is on the negatively sloped portion of the Laffer curve Correct Answer Incorrect Answer

    Solution

    Laffer Curve is an inverted-U shaped graph. A cut in tax rates will decrease tax revenues if the economy is on the positively sloped portion of the Laffer curve, and increase tax revenues if the economy is on the negatively sloped portion of the Laffer curve

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