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Consider the following statements:
(1) Laffer curve always suggests that higher the tax rate levied by the government, higher would be the tax revenue generated.
(2) Phillips curve depicts the inverse relationship between inflation and unemployment.
(3) Kuznets curve suggests that as an economy grows, income inequality increases first and then it starts falling.
Which of the statements given above is/are correct?
  • a)
    1 and 3 only
  • b)
    1, 2 and 3
  • c)
    2 and 3 only
  • d)
    2 only
Correct answer is option 'C'. Can you explain this answer?
Most Upvoted Answer
Consider the following statements:(1) Laffer curve always suggests tha...
Laffer curve was developed by economist Arthur Laffer. It depicts the relationship between tax rate and tax revenue generated by the government. It looks like an inverted U curve which means an increase in the tax rate increases the tax revenue until it reaches its maximum beyond which any tax rate hike would dissuade taxpayers to work less. So, statement (1) is not correct.
Phillips curve expresses the negative relationship between inflation and unemployment. For instance, an increase in the money supply would increase the aggregate demand in the economy, which would cause the output to rise at higher prices and unemployment to fall in the economy. So statement (2) is correct.
Kuznets curve defines the relationship between output and income inequality. It looks like an inverted U curve, which means that initially, economic development causes higher inequality but, later, economy witnesses trickle-down effects of higher growth reaching down to lower and middle-income strata of the society. Consequently, it enables them to access affordable healthcare and quality education and thus reduces income inequality in the economy. So statement (3) is correct.
Therefore, the correct answer is (c).
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Community Answer
Consider the following statements:(1) Laffer curve always suggests tha...
Laffer curve was developed by economist Arthur Laffer. It depicts the relationship between tax rate and tax revenue generated by the government. It looks like an inverted U curve which means an increase in the tax rate increases the tax revenue until it reaches its maximum beyond which any tax rate hike would dissuade taxpayers to work less. So, statement (1) is not correct.
Phillips curve expresses the negative relationship between inflation and unemployment. For instance, an increase in the money supply would increase the aggregate demand in the economy, which would cause the output to rise at higher prices and unemployment to fall in the economy. So statement (2) is correct.
Kuznets curve defines the relationship between output and income inequality. It looks like an inverted U curve, which means that initially, economic development causes higher inequality but, later, economy witnesses trickle-down effects of higher growth reaching down to lower and middle-income strata of the society. Consequently, it enables them to access affordable healthcare and quality education and thus reduces income inequality in the economy. So statement (3) is correct.
Therefore, the correct answer is (c).
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Consider the following statements:(1) Laffer curve always suggests that higher the tax rate levied by the government, higher would be the tax revenue generated.(2) Phillips curve depicts the inverse relationship between inflation and unemployment.(3) Kuznets curve suggests that as an economy grows, income inequality increases first and then it starts falling.Which of the statements given above is/are correct?a)1 and 3 onlyb)1, 2 and 3c)2 and 3 onlyd)2 onlyCorrect answer is option 'C'. Can you explain this answer?
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Consider the following statements:(1) Laffer curve always suggests that higher the tax rate levied by the government, higher would be the tax revenue generated.(2) Phillips curve depicts the inverse relationship between inflation and unemployment.(3) Kuznets curve suggests that as an economy grows, income inequality increases first and then it starts falling.Which of the statements given above is/are correct?a)1 and 3 onlyb)1, 2 and 3c)2 and 3 onlyd)2 onlyCorrect answer is option 'C'. Can you explain this answer? for UPSC 2025 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about Consider the following statements:(1) Laffer curve always suggests that higher the tax rate levied by the government, higher would be the tax revenue generated.(2) Phillips curve depicts the inverse relationship between inflation and unemployment.(3) Kuznets curve suggests that as an economy grows, income inequality increases first and then it starts falling.Which of the statements given above is/are correct?a)1 and 3 onlyb)1, 2 and 3c)2 and 3 onlyd)2 onlyCorrect answer is option 'C'. Can you explain this answer? covers all topics & solutions for UPSC 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Consider the following statements:(1) Laffer curve always suggests that higher the tax rate levied by the government, higher would be the tax revenue generated.(2) Phillips curve depicts the inverse relationship between inflation and unemployment.(3) Kuznets curve suggests that as an economy grows, income inequality increases first and then it starts falling.Which of the statements given above is/are correct?a)1 and 3 onlyb)1, 2 and 3c)2 and 3 onlyd)2 onlyCorrect answer is option 'C'. Can you explain this answer?.
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