Draw a labor-leisure diagram with leisure on the horizontal axis, and earnings on the vertical axis, assuming the maximum hours of labor or leisure equals 4000 hours a year. Draw a budget constraint for someone who earns $20 an hour. Add an indifference curve reflecting the choice of working a half time job, at 1000 hours a year. Label hours of leisure, hours of labor, and earnings at this choice.

Assume the worker is single with two children. Add the EITC to the budget constraint, with a phase in range benefit of 40% up to $15,410 of earnings, a constant benefit of $6164 for earnings between $15,410 and $20,131, and a benefit phase out of 21.06% for earnings above $20,131. At what level of earnings are benefits fully phased out? Compared to the original budget constraint, will utility for this worker rise? How do you know?