The Laffer Curve Illustrates the Concept That

question 8

Multiple Choice

The Laffer curve illustrates the concept that

• A) an increase in marginal tax rates will always cause tax revenues to increase.
• B) an increase in marginal tax rates will always cause tax revenues to decrease.
• C) when marginal tax rates are quite high, a decrease in the tax rate may cause tax revenues to increase.
• D) when marginal taxes are quite low, an increase in the tax rate will probably cause tax revenues to decline.

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Definitions:

Coupon Rate

The annual interest rate paid on a bond, expressed as a percentage of the bond's face value.

Maturity Bond

A bond's maturity is the specific future date when the principal amount of the bond is to be paid back to the bondholder, along with any final interest payments.

Par Value

The nominal or face value of a bond, share of stock, or coupon as stated by the issuer.

Annual Coupon Bond

A bond that pays interest to the holder on an annual basis, typically as a fixed percentage of its face value.