Reference no: EM132422963

Problem: TANF and Labor Supply (25 points). Kerry has an hourly wage rate of $20 and 2,000 hours to spend on either labor or leisure.

Required:

Question 1: Find an equation for Kerry's budget constraint with no welfare, and graph it.

Question 2: In an attempt to reduce moral hazard, the government changes the TANF program to a benefit guarantee of G = $15,000 and a benefit reduction rate t = 50%. (As a fraction, t = 12 ). Graph Kerry's new budget constraint. What might this do to Kerry's hours worked? Consider multiple scenarios.

Question 3: Consider the same program as in part b), but now Kerry has to fill out paperwork frequently to continue receiving welfare. Filling out this paperwork has a cost of $5,000 to Kerry. Graph Kerry's new budget constraint. How might this affect Kerry's welfare dependency? Consider multiple scenarios.

Question 4: Consider the same program as in part b), but now Kerry's benefits are linked to her publicly provided health insurance, which is worth $7,000. That is, if Kerry goes off welfare she can no longer receive publicly provided health insurance. Graph Kerry's new budget constraint. How might this affect Kerry's welfare dependency? Consider multiple scenarios.