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In 2019, a single individual with three children can receive the earned income tax credit (EITC), depending on their income. The phase-in rate is set at 45% for each $1 of income worked up until they earn $14,570, the benefit is then fixed until the phase-out range kicks in with earnings above $19,030 at a rate of 21.06%. a. Determine the maximum benefit earned. b. Determine the income level at which a person no longer receives the EITC. c. Suppose an individual currently earns $40,000 per year, calculate the benefit she would receive from the EITC. d. Illustrate the EITC benefit earned (y-axis) versus the level of income (x-axis). Label the kink points and the individual's current benefit and income level. e. With 4,000 hours available in a given year and a wage rate of $16/hr for work, illustrate her budget constraint and an indifference curve (without the EITC) on a separate labor- leisure diagram. f. On the diagram from e, illustrate the impact of the EITC program on her budget constraint and draw in a new optimal indifference curve. g. Given your answer above, did the EITC discourage her from working?

In 2019, a single individual with three children can receive the earned income tax credit (EITC), depending on their income. The phase-in rate is set at 45% for each $1 of income worked up until they earn $14,570, the benefit is then fixed until the phase-out range kicks in with earnings above $19,030 at a rate of 21.06%. a. Determine the maximum benefit earned. b. Determine the income level at which a person no longer receives the EITC. c. Suppose an individual currently earns $40,000 per year, calculate the benefit she would receive from the EITC. d. Illustrate the EITC benefit earned (y-axis) versus the level of income (x-axis). Label the kink points and the individual's current benefit and income level. e. With 4,000 hours available in a given year and a wage rate of $16/hr for work, illustrate her budget constraint and an indifference curve (without the EITC) on a separate labor- leisure diagram. f. On the diagram from e, illustrate the impact of the EITC program on her budget constraint and draw in a new optimal indifference curve. g. Given your answer above, did the EITC discourage her from working?

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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In 2019, a single individual with three children can receive the earned income tax credit (EITC), depending on their income. The phase-in rate is set at 45% for each $1 of income worked up until they earn $14,570, the benefit is then fixed until the phase-out range kicks in with earnings above $19,030 at a rate of 21.06%. a. Determine the maximum benefit earned. b. Determine the income level at which a person no longer receives the EITC. c. Suppose an individual currently earns $40,000 per year, calculate the benefit she would receive from the EITC. d. Illustrate the EITC benefit earned (y-axis) versus the level of income (x-axis). Label the kink points and the individual's current benefit and income level. e. With 4,000 hours available in a given year and a wage rate of $16/hr for work, illustrate her budget constraint and an indifference curve (without the EITC) on a separate labor- leisure diagram. f. On the diagram from e, illustrate the impact of the EITC program on her budget constraint and draw in a new optimal indifference curve. g. Given your answer above, did the EITC discourage her from working?
Transcribed Image Text:In 2019, a single individual with three children can receive the earned income tax credit (EITC), depending on their income. The phase-in rate is set at 45% for each $1 of income worked up until they earn $14,570, the benefit is then fixed until the phase-out range kicks in with earnings above $19,030 at a rate of 21.06%. a. Determine the maximum benefit earned. b. Determine the income level at which a person no longer receives the EITC. c. Suppose an individual currently earns $40,000 per year, calculate the benefit she would receive from the EITC. d. Illustrate the EITC benefit earned (y-axis) versus the level of income (x-axis). Label the kink points and the individual's current benefit and income level. e. With 4,000 hours available in a given year and a wage rate of $16/hr for work, illustrate her budget constraint and an indifference curve (without the EITC) on a separate labor- leisure diagram. f. On the diagram from e, illustrate the impact of the EITC program on her budget constraint and draw in a new optimal indifference curve. g. Given your answer above, did the EITC discourage her from working?
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