(30 pts) To help low income workers, government may give a policy like a cash grant combined...
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Question:
(30 pts) To help low income workers, government may give a policy like a cash grant combined with a labor income tax (e,g, $1000 cash grant combined with a 50% labor income tax), which is the second policy we talked about in class. Assume leisure is a normal good, someone argues that people will always choose to have more leisure when given this kind of policy. Please comment on this argumentuse and briefly explain using the knowledge of income effect and substitution effect.
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