4. a. Draw a budget constraint for an individual who can work (or take leisure) up to 2000 hours per year, and who earns a wage of $10/hour. Clearly label both intercepts on your graph.

b. A government's cash welfare program provides a government transfer (G) of $4,000, with a tax rate (t) of 50% for any earnings from work (i.e., G is reduced by 50 cents for each $1 earned in work). Using the same graph as in (a), add a budget constraint illustrating this program, clearly labeling all points on the graph including the "break-even" point at which the individual no longer receives any transfer G. Add an indifference curve indicating the optimal consumption point for an individual who works 500 hours per year and qualifies for this program.

c. To reduce expenditures on the program, the government reduces G to $2,000. Illustrate this change on your budget constraint, clearly labeling all relevant points on your graph. Will the individual in part (b) change their hours of work? Explain.

d. For an individual who was receiving G but working zero hours in part (b), will they now begin working when G falls to $2,000? Explain.

e. Under political pressure, the government replaces this program with a Universal Basic Income providing G = $2,000 with a tax rate of zero. Illustrate this new budget constraint along with the original budget constraint from part (a), again for an individual who can work up to 2000 hours per year at a wage of $10/hour. For an individual who was working 500 hours per year in the absence of any cash welfare programs, how do their work incentives change with the UBI (as compared to the no cash welfare situation in part (a))?

f. What are two advantages of a UBI program? What are two disadvantages? Explain briefly. (See the two optional articles on our Latte page "Why Americans Need a Guaranteed Income" and "Why Universal Basic Income Is a Bad Idea" for contrasting arguments on UBI programs.)