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      Question

      The Laffer Curve illustrates the relationship

      between:
      A Inflation and unemployment. Correct Answer Incorrect Answer
      B Tax rates and tax revenue. Correct Answer Incorrect Answer
      C Government spending and GDP. Correct Answer Incorrect Answer
      D Interest rates and investment. Correct Answer Incorrect Answer
      E None of these Correct Answer Incorrect Answer

      Solution

      It hypothesizes that there is an optimal tax rate that maximizes revenue. Beyond that point, higher rates discourage economic activity so much that revenue falls.

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