Question

Suppose that in a certain nation, the flat income tax rate of 70 percent falls to 65 percent and as a result the tax base rises from $500 billion to $575 billion. as a result, tax revenues ____, indicating the nation is on the ______ portion of its laffer curve.

a. rise; upward-sloping
b. rise; downward-sloping
c. fall: upward-sloping
d. fall; downward-sloping

Answer 1

Tax revenues rise, indicating the nation is on the upward-sloping portion of its Laffer curve. Therefore, the correct option is A.

Step-by-step explanation:

When the flat income tax rate in a certain nation decreases from 70 percent to 65 percent and the tax base increases from $500 billion to $575 billion, it signifies that tax revenues rise. This indicates that the nation is on the upward-sloping portion of its Laffer curve.