Question:

The Laffer curve is the graphical representation of:

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Associate economic curves with their correct descriptions and relevant theories to avoid confusion.
Updated On: Jun 6, 2025
  • The inverse relationship between the rate of unemployment and the rate of inflation in an economy.
  • The relationship between tax rates and absolute revenue these rates generate for the government.
  • The relationship between environmental quality and economic development.
  • The inequality in income distribution
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The Correct Option is B

Solution and Explanation

Step 1: Understanding the Laffer Curve
The Laffer Curve is an economic theory that shows how government tax revenue changes as tax rates change. It suggests there is an optimal tax rate that maximizes revenue.
Step 2: Explanation
- At 0% tax rate, revenue is zero.
- At 100% tax rate, revenue is also zero because no one would work or declare income.
- Somewhere between 0% and 100%, the government collects maximum revenue. This relationship is shown by the Laffer curve.
Step 3: Other options
- Option (A) describes the Phillips curve, not Laffer.
- Option (C) describes the Environmental Kuznets curve.
- Option (D) refers to income inequality concepts.
Thus, Option (B) is correct.
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