Economics (AS & A Level) · Oct / Nov 2022 · Paper 32 · Question 29
9708Effectiveness of policy options to meet all macroeconomic objectives
A country with an income tax rate X decides to increase its tax rate. The diagram shows tax revenue will fall. [Diagram: graph with vertical axis labelled 'tax revenue' and horizontal axis labelled 'tax rate', showing a Laffer-type curve rising then falling, with X marked on the horizontal axis at the peak.] Why would this happen?
- AFewer goods will be produced.
- BPeople will work fewer hours to maintain incomes.
- CPrices will rise.
- DThere will be an increase in tax avoidance.
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Correct answer: D. There will be an increase in tax avoidance.
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