(a) Draw the annual budget constraint of a worker. The vertical axis should be annual income...

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(a) Draw the annual budget constraint of a worker. The vertical axis should be annual income in dollars, and the horizontal axis is annual hours of leisure. For simplicity, assume the worker can work a maximum of 4,000 hour per year, and earn a maxi- mum of $40,000. (The implicit wage rate in $10/hour.) Label (4000, $0) as point A, and label (0, $40000) as point E. (b) Consider a simplified version of the Earned Income Tax Credit (EITC): Workers who make $0-10,000 receive a tax credit of $0.50 on each dollar of earnings. The maximum possible credit is thus $5,000. Workers who make $10,00015,000 receive the full $5,000 credit (i.e., there is no change in benefits per dollar of earnings). For workers who make $15,00035,000, the tax credit is phased out at 25 cents for each dollar earned. Workers who earn >$35,000 get no EITC benefits. Add the budget constraint with EITC to your graph. Label the kink" points as B, C, and D from bottom to top. (c) Describe how EITC affects labor supply incentives for workers in earnings ranges: $0-10,000 (points A-B) $10,000-15,000 (points B-C) $15,000-35,000 (points C-D). $35,000-40,000 (points D-E). Be sure to refer to the income/substitution effects as appropriate in each case. (a) Draw the annual budget constraint of a worker. The vertical axis should be annual income in dollars, and the horizontal axis is annual hours of leisure. For simplicity, assume the worker can work a maximum of 4,000 hour per year, and earn a maxi- mum of $40,000. (The implicit wage rate in $10/hour.) Label (4000, $0) as point A, and label (0, $40000) as point E. (b) Consider a simplified version of the Earned Income Tax Credit (EITC): Workers who make $0-10,000 receive a tax credit of $0.50 on each dollar of earnings. The maximum possible credit is thus $5,000. Workers who make $10,00015,000 receive the full $5,000 credit (i.e., there is no change in benefits per dollar of earnings). For workers who make $15,00035,000, the tax credit is phased out at 25 cents for each dollar earned. Workers who earn >$35,000 get no EITC benefits. Add the budget constraint with EITC to your graph. Label the kink" points as B, C, and D from bottom to top. (c) Describe how EITC affects labor supply incentives for workers in earnings ranges: $0-10,000 (points A-B) $10,000-15,000 (points B-C) $15,000-35,000 (points C-D). $35,000-40,000 (points D-E). Be sure to refer to the income/substitution effects as appropriate in each case.