In 2019, a single individual with three children can receive the earned income tax credit (EITC),depending on their income. The phase-in rate is set at 45% for each $1 of income worked upuntil they earn $14,570, the benefit is then fixed until the phase-out range kicks in with earningsabove $19,030 at a rate of 21.06%.a. Determine the maximum benefit earned.b. Determine the income level at which a person no longer receives the EITC.c. Suppose an individual currently earns $40,000 per year, calculate the benefit she wouldreceive from the EITC.d. Illustrate the EITC benefit earned (y-axis) versus the level of income (x-axis). Label thekink points and the individual's current benefit and income level.e. With 4,000 hours available in a given year and a wage rate of $16/hr for work, illustrateher budget constraint and an indifference curve (without the EITC) on a separate labor-leisure diagram.f. On the diagram from e, illustrate the impact of the EITC program on her budgetconstraint and draw in a new optimal indifference curve.g. Given your answer above, did the EITC discourage her from working?

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Answered: In 2019, a single individual with three…

Microeconomics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506893

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter15: Income Inequality And Poverty

Section: Chapter Questions

Problem 7CQ

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