Question

the graph above shows the relationship between the size of the tax and the government revenue from the tax. there are also three points: point a is on the increasing portion, point c is on the decreasing portion, and point b is at the top. refer to the graph. a country claim that the current level of taxes is too high and that a cut in tax rates would actually increase the government revenue. if this claim is valid, the country is at (select the option that covers all possibilities). select either point b or c either point a or c point b point a either point a or b point c

Explanation:

The Laffer - curve shows the relationship between tax rates and government revenue. At point B, government revenue is maximized. Points on the increasing portion (like A) mean that an increase in the tax rate will increase revenue, and points on the decreasing portion (like C) mean that an increase in the tax rate will decrease revenue. If a country claims that increasing tax rates will increase government revenue, it must be on the increasing portion of the Laffer - curve, which is point A.

Answer:

1. point A