Question

if an economist recommends that the government reduce the tax rate in order to increase tax revenues (based on the laffer curve), she is implicitly assuming that the economy is currently operating at a point a. on the downward-sloping portion of the laffer curve. b. outside the laffer curve. c. on the upward-sloping portion of the laffer curve.

Answer 1

If an economist recommends that the government reduce the tax rate in order to increase tax revenues based on the Laffer curve, she is implicitly assuming that the economy is currently operating at a point a. on the downward-sloping portion of the Laffer curve.

Step-by-step explanation:

The economist is implicitly assuming that the economy is currently operating at a point a. on the downward-sloping portion of the Laffer curve.

The Laffer curve suggests that there is an optimal tax rate at which tax revenues are maximized. At very high tax rates, reducing the tax rate can actually increase tax revenues because it provides incentives for individuals and businesses to work and invest more.

y recommending a reduction in the tax rate to increase tax revenues, the economist is assuming that the economy is currently on the downward-sloping portion of the Laffer curve, where a reduction in the tax rate would lead to higher tax revenues.