Data from the Effects of the Substantial Tax Rate Reductions

question 90

Multiple Choice

Data from the effects of the substantial tax rate reductions in the 1980s

• A) cast serious doubt on the Laffer curve as a guide for tax policy.
• B) are consistent with the principles illustrated in the Laffer curve.
• C) generally reject the idea that lower tax rates can lead to higher tax revenue.
• D) support an "inverted Laffer curve" in which reducing tax rates for those with high incomes leads to lower tax revenue.

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Definitions:

Pure Interest Rate

The earning power of money. An interest rate without an inflation component or premiums for risk.

Inverted Yield Curve

A rare financial situation where long-term debt instruments have a lower yield than short-term debt instruments of the same credit quality.

Short-Term Interest Rates

Interest rates applicable on loans or financial instruments that are due for payment within a short timeframe, typically less than one year.

Long-Term Interest Rates

Interest rates applied to loans or financial assets that are due for repayment in a period longer than one year.