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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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