The 'Laffer curve' suggests that beyond a certain tax rate, an increase in the tax rate may: MCQ with Answer and Explanation

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The 'Laffer curve' suggests that beyond a certain tax rate, an increase in the tax rate may:

A. increase total tax revenue

B. reduce total tax revenue

C. leave revenue unchanged

D. eliminate all tax revenue immediately

Answer: Option B

Solution (By JKSSB Mock Tests)

The Laffer curve suggests very high tax rates can reduce work and investment, lowering tax revenue.

This question belongs to: Economy GK Economy Set 1

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Question #1

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The concept of 'Bounded Rationality' associated with Herbert Simon implies that:

A. Only perfect information is assumed

B. Rationality is unbounded

C. Individuals always optimise with unlimited computational power

D. Individuals are limited in their cognitive capacity and information and therefore satisfice rather than optimise

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Correct Answer: Option D

Explanation:
Bounded rationality recognises that human decision-makers face cognitive limitations and incomplete information, so they typically seek satisfactory rather than optimal solutions.

This question belongs to: Economy GK Economy Set 1

Question #2

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The 'Export Promotion Capital Goods' scheme allows import of capital goods at:

A. prohibited duty

B. zero duty subject to export obligation

C. only after export

D. higher duty

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Correct Answer: Option B

Explanation:
EPCG allows import of capital goods at zero or concessional duty subject to export obligations.

This question belongs to: Economy GK Economy Set 1

Question #3

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The 'average propensity to save' is calculated as:

A. consumption divided by income

B. saving divided by income

C. income divided by saving

D. change in saving divided by change in income

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Correct Answer: Option B

Explanation:
APS is total saving divided by total income.

This question belongs to: Economy GK Economy Set 1

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