Question

1. (6 pts) What is Laffer Curve? 2. (8 pts) As Canada recovers from the economic challenges brought on by the COVID pandemic, the federal government will make choices that will cause tax rates to rise or fall. This will cause a change in Canada's position on the Laffer Curve. Explain what will happen to Canada's position on the Laffer Curve for both the cases where the tax rates rise and when they fall. 3. (6 pts) What will happen if Canada's Tax Rate grows higher than T*?

Answer 1

Answer

1. The laffer curve was introduced by Arthur Laffer. It basically shows the relationship between the rate of taxes imposed by the government and the total tax revenue collected by it. It argues that it is not that increasing tax rates will increase revenues.

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