The Laffer Curve Indicates That

question 253

Multiple Choice

The Laffer curve indicates that

• A) when tax rates are low, a decrease in tax rates is likely to increase tax revenues.
• B) when tax rates are high, an increase in tax rates is likely to a decrease in tax revenues.
• C) tax revenue will always increase when tax rates are increased.
• D) tax revenue will always decrease when tax rates are lowered.

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Definitions:

Variable Interest Entity (VIE)

A legal entity in which an investor holds a controlling interest that is not based on the majority of voting rights.

Intra-Entity Bonds

Bonds issued between different divisions or units within the same company, rather than to external investors.

Straight-Line Method

An accounting method of depreciation where an asset's cost is evenly distributed over its useful life.

Undervalued

A term referring to an asset or a company that is available for purchase at a price perceived to be below its inherent value.