Reference no: EM13149154

Consider an income guarantee program with an income guarantee of $3,000 and a benet reduction rate of 50 percent. A person can work up to 2,000 hours per year at $6 per hour. Alice, Bob, Calvin, and Deborah work for 100, 333.33, 400, and 600 hours, respectively, under this program. The government is considering altering the program to improve work incentives. Its proposal has two pieces. First, it will lower the guarantee to $2,000. Second, it will not reduce benets for the rst $3,000 earned by the workers. After this, it will reduce benets at a reduction rate of 50%. Draw the budget constraint facing any worker under the proposed new program.