Reference no: EM1330484

The social discount rate

1. Suppose a welfare recipient is given a cash grant that increases his monthly income. That grant will never be taken away no matter how much the recipient earns. The grant will result in a (n):
a. substitution effect favorable to work.
b. substitution effect unfavorable to work.
c. income effect favorable to work.
d. income effect unfavorable to work.

2. The social rate discount used in cost-benefit analysis measures the:
a. benefits of a project.
b. cost of a project.
c. rate of return on the project.
d. opportunity cost of displaced private saving or investment.

3. A cost-benefit analysis of an irrigation project shows that the ratio of the discounted present value of benefits to costs is less than one. This implies that:
a. the net benefit of the project is positive.
b. the net benefit of the project is negative.
c. efficiency can be attained by undertaking the project.
d. the project will redistribute income to the poor.

4. An income guarantee of $10,000 per year for all families is established with a phase-out rate of benefits of 50 cents per dollar of earnings. Then it follows that:
a. only families with earnings of less than $10,000 per year will receive transfers.
b. all families with earnings of less than $20,000 per year will receive transfers.
c. all families with income of less than $30,000 per year will receive transfers.
d. all families will receive transfers.