If an Economy Is on the Downward Sloping Section of the Laffer

question 65

True/False

If an economy is on the downward sloping section of the Laffer curve, then decreasing taxes would lead to an increase in tax revenue.

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Definitions:

Interest Tax Shield

The decrease in what one owes in income taxes by removing the cost of debt interest from the taxable income figure.

Capital Structure Puzzle

The term refers to the challenge and debate over the optimal composition of a company's debt and equity financing to maximize its value.

Optimal Capital Structure

The best mix of debt, preferred stock, and common equity that maximizes a company’s stock price.

Financial Leverage

The use of borrowed funds to finance the acquisition of assets, with the expectation that the income or capital gain from the assets will exceed the cost of borrowing.