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      Question

      Laffer curve predicts what happens as tax rate

      rises?
      A Tax revenue continuously increases. Correct Answer Incorrect Answer
      B Tax revenue continuously decreases. Correct Answer Incorrect Answer
      C Tax revenue initially increases and then decreases. Correct Answer Incorrect Answer
      D Tax revenue remains constant. Correct Answer Incorrect Answer

      Solution

      The Laffer curve predicts that as the tax rate rises, tax revenue initially increases and then decreases. This implies there is an optimal tax rate that maximizes government revenue; beyond that point, higher tax rates discourage economic activity, leading to lower total revenue.

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