Question:
The relationship between tax revenue and tax rate is represented by _ _ _.
The relationship between tax revenue and tax rate is represented by _ _ _.
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The Laffer Curve suggests that beyond a certain point, increasing tax rates can reduce total tax revenue.
Updated On: Jun 5, 2026
- J-Curve
- Laffer Curve
- Phillips Curve
- IS Curve
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The Correct Option is B
Solution and Explanation
Step 1: Understand the concept.
The question asks about the curve showing the relationship between tax rates and tax revenue collected by the government.
Step 2: Recall the Laffer Curve.
The Laffer Curve shows that:
At very low tax rates, revenue is low and
At very high tax rates, revenue may also fall because excessively high taxes discourage work, production, and investment.
Thus, tax revenue first rises and then falls as tax rates increase.
Step 3: Analyze other options.
(A) J-Curve: Relates to trade balance adjustment after currency depreciation.
(C) Phillips Curve: Shows relationship between inflation and unemployment.
(D) IS Curve: Represents equilibrium in the goods market in macroeconomics.
None of these describe tax revenue versus tax rate.
Step 4: Final conclusion.
Therefore, the relationship between tax revenue and tax rate is represented by the
\[ \boxed{\text{Laffer Curve}} \]
The question asks about the curve showing the relationship between tax rates and tax revenue collected by the government.
Step 2: Recall the Laffer Curve.
The Laffer Curve shows that:
At very low tax rates, revenue is low and
At very high tax rates, revenue may also fall because excessively high taxes discourage work, production, and investment.
Thus, tax revenue first rises and then falls as tax rates increase.
Step 3: Analyze other options.
(A) J-Curve: Relates to trade balance adjustment after currency depreciation.
(C) Phillips Curve: Shows relationship between inflation and unemployment.
(D) IS Curve: Represents equilibrium in the goods market in macroeconomics.
None of these describe tax revenue versus tax rate.
Step 4: Final conclusion.
Therefore, the relationship between tax revenue and tax rate is represented by the
\[ \boxed{\text{Laffer Curve}} \]
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