Question

The curve that explains the relationship between tax rate and tax revenue is known as:

• A. Laffer curve
• B. Engle curve
• C. Beveridge curve
• D. Phillips curve

Hint:

The Laffer curve shows that there is an optimal tax rate that maximizes government revenue, and beyond that rate, tax revenue starts to decrease.

Answer 1

The Correct Option is A

Step 1: Understanding the Laffer curve.
The Laffer curve illustrates the relationship between tax rates and tax revenue, showing that tax revenue increases with the tax rate up to a point, after which it begins to decrease as the tax rate rises too high, causing a decrease in the taxable base.
Step 2: Explanation of the options.
(A) The Laffer curve explains how tax revenue changes in response to changes in the tax rate, making it the correct answer. (B) The Engle curve describes the relationship between income and the quantity of goods consumed, not tax rates and revenue. (C) The Beveridge curve is used in labor economics to describe the relationship between unemployment and vacancies. (D) The Phillips curve describes the inverse relationship between inflation and unemployment, not the relationship between tax rate and tax revenue.
Step 3: Conclusion.
The correct answer is (A), as the Laffer curve is the one that explains the relationship between tax rate and tax revenue.