Answer to Question #300986 in Microeconomics for 1820

Question

1. Consider the Earned Income Tax Credit policy described. All else equal, what is the implication for labor supply if:

a. The EITC supplement rate increases from (about) 30% to 60%?

Answer 1

A.The earned income tax credit subsidizes low-income working families. The credit equals a fixed percentage of earnings from the first dollar of earnings until the credit reaches its maximum.

The EITC supplement rate increase from (about) 30% to 60% will increase labor supply.