Suppose a country wants to introduce an earned income tax credit

(EITC) for single mothers with children. It plans to implement it in

the following way:

- For earnings below $5; 000; a tax credit of 20 percent can be claimed;

- For earnings between $5; 000 and $10; 000, a tax credit of 40 percent

can be claimed;

- For earnings above $10; 000 the tax credit is phased out at a 10 percent

tax rate

(a) Show graphically how the budget constraint changes after the in-

troduction of the earned income tax and explain your reasoning.

Clearly mark all the important points in your graph.