Refer to the Laffer Curve Above

question 92

Multiple Choice

Refer to the Laffer Curve above. A cut in the tax rate from T₂ to T₁ would:

• A) Decrease tax revenues and support the views of supply-side economists
• B) Increase tax revenues and support the views of supply-side economists
• C) Increase tax revenues and support the views of mainstream economists
• D) Decrease tax revenues and support the views of mainstream economists

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Definitions:

Forward Rate

The predetermined interest rate for a future financial transaction, agreed upon today.

Short Rate

A one-period interest rate.

Term Structure

The arrangement or relationship between interest rates and the time to maturity of debt securities.

Interest Rates

The cost of borrowing money or the return on an investment, usually expressed as a percentage per annum.