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2. (60 points) Suppose Lisa is a single parent with one child. Her weekly wage is $1000. In 2015, the EITC policy has the following
2. (60 points) Suppose Lisa is a single parent with one child. Her weekly wage is $1000. In 2015, the EITC policy has the following benefits available for Lisa. If her income is lower than $10000, then she can get 35% earning as tax credit. If her income is between $10000 and $20000, she gets the maximum tax credit. If her income is higher than $20000, the tax credit phasing out. Each dollar earned reduced the tax credit by 20%. Earnings of $37500 and above do not qualify for EITC. a) (10 points) What is the maximum tax credit? b) (20 points) Draw Lisa's budget constraint with and without EITC (suppose 50 weeks are available per year and Lisa chooses how many weeks to work). c) (10 points) Suppose without EITC, Lisa works 5 weeks. Will EITC increase or decrease Lisa's labor supply? Use indifference curves to help you answer the question. d) (10 points) Suppose without EITC, Lisa works 30 weeks. Will ETC increase or decrease Lisa's labor supply? Use indifference curves to help you answer the question e) (10 points) Why EITC expanded significantly during the 1990s
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