(Figure: Laffer Curve) the Graph Shows a Hypothetical Laffer Curve

question 56

Multiple Choice

(Figure: Laffer Curve) The graph shows a hypothetical Laffer curve. If the tax rate is 80%:

• A) the government should reduce the rate to 50% to maximize tax revenue.
• B) the tax rate should be increased to 100% (all income is taken in taxes) to maximize tax collection.
• C) the tax rate is at its optimal level.
• D) the tax rate should be reduced to zero to maximize tax revenue.

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Definitions:

Discount

The excess of the face amount of bonds over their issue price or the excess of the par value of stock over its issue price.

Premium on Bonds Payable

The amount by which a bond's selling price exceeds its face value or par value.

Contract Rate

This term typically refers to the interest rate agreed upon in a financial or loan agreement.

Market Rate

The prevailing interest rate available in the marketplace on investments, loans, or savings.