Reference no: EM131482409
Assume that the structure of EITC is as follows:
1. During the phase in range, EITC recipients receive an additional 15% of their income for each dollar earned up to a maximum of a $3,000 credit limit.
2. They can earn this $3,000 credit until the phase out range, which begins when they start earning $30,000 or more.
3. During the phase-out range, the credit reduces by 10% until it reaches $0
A. Graph the structure of the EITC with income on the X-axis and the EITC credit on the Y-axis. Clearly label all relevant points on the graph, including the maximum credit, earnings when the credit reaches $0, and earnings at the end of the phase in range and at the beginning and end of the phase out range.
B. Now assume a worker earns $2,000 per week if she works and can work up to 50 weeks a year. Plot a budget constraint for consumption (Y) on the Y axis and hours of Leisure (L) on the X-axis assuming that EITC does not exist.
C. Now, on the same graph, draw her budget constraint assuming EITC exists.
Be sure to label on both the Y and X axes the values for each part of EITC. That is, at how many weeks of work does the phase-in end: what will our worker earn? At how many weeks of work does the phase-out begin and end; how mch does our worker earn at each point?
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