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Suppose the government introduces an EITC such that for the first $8,000 of earnings, the government pays $.50 per dollar on wages earned. For the next $3,000 of earnings, the credit is held constant at $4,000 and after that point, the credit is reduced at a rate of $.20 per dollar earned. When the credit reaches zero, there is no additional EITC. Draw the budget constraint that reflects this EITC for a worker who can work up to $4,000 hours per year at a wage of $10 per hour. Illustrate on your graph the portions of the budget constraint where the labor supply effects of the policy are positive, negative, or ambiguous, relative to the "no policy" status quo.

Suppose the government introduces an EITC such that for the first $8,000 of earnings, the government pays $.50 per dollar on wages earned. For the next $3,000 of earnings, the credit is held constant at $4,000 and after that point, the credit is reduced at a rate of $.20 per dollar earned. When the credit reaches zero, there is no additional EITC. Draw the budget constraint that reflects this EITC for a worker who can work up to $4,000 hours per year at a wage of $10 per hour. Illustrate on your graph the portions of the budget constraint where the labor supply effects of the policy are positive, negative, or ambiguous, relative to the "no policy" status quo.

Introductory Circuit Analysis (13th Edition)
Introductory Circuit Analysis (13th Edition)
13th Edition
ISBN:9780133923605
Author:Robert L. Boylestad
Publisher:Robert L. Boylestad
Chapter1: Introduction
Section: Chapter Questions
Problem 1P: Visit your local library (at school or home) and describe the extent to which it provides literature...
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Suppose the government introduces an EITC such that for the first $8,000 of earnings, the government pays $.50 per dollar on wages earned. For the next $3,000 of earnings, the credit is held constant at $4,000 and after that point, the credit is reduced at a rate of $.20 per dollar earned. When the credit reaches zero, there is no additional EITC. Draw the budget constraint that reflects this EITC for a worker who can work up to $4,000 hours per year at a wage of $10 per hour. Illustrate on your graph the portions of the budget constraint where the labor supply effects of the policy are positive, negative, or ambiguous, relative to the "no policy" status quo.
Transcribed Image Text:Suppose the government introduces an EITC such that for the first $8,000 of earnings, the government pays $.50 per dollar on wages earned. For the next $3,000 of earnings, the credit is held constant at $4,000 and after that point, the credit is reduced at a rate of $.20 per dollar earned. When the credit reaches zero, there is no additional EITC. Draw the budget constraint that reflects this EITC for a worker who can work up to $4,000 hours per year at a wage of $10 per hour. Illustrate on your graph the portions of the budget constraint where the labor supply effects of the policy are positive, negative, or ambiguous, relative to the "no policy" status quo.
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