Suppose that a country currently has a tax system that gives each citizen $5,000 in cash up front, exempts the first $10,000 in earned income from tax, and taxes all earned income over $10,000 at a 25% rate. It is considering replacing this system with an earned income tax credit (EITC) system. The proposed new system would drop the $5,000 cash giveaway and instead would subsidize the first $10,000 in earned income at a 50% rate. All income earned over $10,000 still would be taxed at the same 25% rate, and the EITC benefits would never be phased out. Describe the effects of this policy change on the labor supply of workers with various incomes. [4 marks]Suppose you are the CEO of a large company. Your compensation is based on current profitability. You are considering undertaking one of two investments available to the company: (a) one that yields profits of $500 million in each of the next 5 years and none thereafter and (b) one that yields annual profits of $300 million over 20 years. You choose the first investment. How could this example illustrate the agency