Using the language and theory from class, what does the Laffer Curve represent, and why does its shape depend on assumptions about income and substitution effects?
(a) The Laffer Curve illustrates the relationship between tax rates and government spending, and its shape is influenced by the elasticity of demand for public goods.
(b) The Laffer Curve shows the connection between tax rates and tax revenue, and its shape is influenced by assumptions about income and substitution effects on taxpayer behavior.
(c) The Laffer Curve depicts the correlation between inflation rates and economic growth, and its shape depends on the level of government debt.
(d) The Laffer Curve demonstrates the impact of interest rates on investment decisions, and its shape is determined by the level of consumer confidence.