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July 23, 2024 

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LAFFER CURVE: The graphical inverted-U relation between tax rates and total tax collections by government. Developed by economist Arthur Laffer, the Laffer curve formed a key theoretical foundation for supply-side economics of President Reagan during the 1980s. It is based on the notion that government collects zero revenue if the tax rate is 0% and if the tax rate is 100%. At a 100% tax rate no one has the incentive to work, produce, and earn income, so there is no income to tax. As such, the optimum tax rate, in which government revenue is maximized, lies somewhere between 0% and 100%. This generates a curve shaped like and inverted U, rising from zero to a peak, then falling back to zero. If the economy is operating to the right of the peak, then government revenue can be increased by decreasing the tax rate. This was used to justify supply-side economic policies during the Reagan Administration, especially the Economic Recovery Tax Act of 1981 (Kemp-Roth Act).

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BUSINESS INVENTORIES: Stocks of finished products, intermediate goods, raw materials, and other inputs that businesses have on hand. One big reason to keep inventories is to maintain a continuous stream of production by avoiding any supply shortages. Another big reason is to avoid the loss of sales because finished products are unavailable when a customer is ready, willing, and able to buy.

     See also | production | shortage | surplus | business cycle | recession | recovery | durable good |


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BUSINESS INVENTORIES, AmosWEB GLOSS*arama, http://www.AmosWEB.com, AmosWEB LLC, 2000-2024. [Accessed: July 23, 2024].


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INDIRECT BUSINESS TAXES

The official entry in the National Income and Product Accounts maintained by the Bureau of Economic Analysis for sales taxes. Indirect business taxes are one key difference between national income (the resource cost of production) and gross (and net) domestic product (the market value of production). Indirect business taxes (IBT) is generally less than 10 percent of gross domestic product (7 to 8 percent is common).

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