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Chapter 15: Q 20. (page 377)
What is the safety net?
Safety-net refers to the welfare and anti-poverty programs implemented by the US government for the poor and the near-poor of the country.
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Exercise 15.2 and Exercise 15.3 asked you to
describe the labor-leisure tradeoff for Jonathon. Since,
in the first example, there is no monetary incentive for
Jonathon to work, explain why he may choose to work
anyway. Explain what the opportunity costs of working
and not working might be for Jonathon in each example.
Using your tables and graphs from Exercise 15.2 and
Exercise 15.3, analyze how the government welfare
system affects Jonathan’s incentive to work.
Imagine that the government reworks the welfare policy that was affecting Jonathan in question 1, so that for each dollar someone like Jonathan earns at work, his government benefits diminish by only 30 cents. Reconstruct the table
from question 1 to account for this change in policy. Draw Jonathan’s labor-leisure opportunity sets, both for before
this welfare program is enacted and after it is enacted.
Consider two of the income security programs in the United States: Temporary Assistance for Needy Families (TANF) and the Earned Income Tax Credit (EITC).
a. When a woman with Children and very low income earns an extra dollar, she receives less in TANF benefits. What do you think is the effect of this feature of TANF on the labor-supply of low-income women? Explain.
b. The EITC proves greater benefits as low-income workers earn more income (up to a point). What do you think is the effect of this program on the labor-supply of low-income individuals? Explain.
c. What are the disadvantages of eliminating TANF and allocating the savings to EITC?
The poverty rate would be substantially lower if the market value of in-kind transfers were added to family income. The largest in-kind transfer is Medicaid, the government health program for the poor. Lets say the program costs \(10,000 per recipient family.
a. If the government gave each recipient family a \)10,000 check instead of enrolling them in the Medicaid program, do you think that most of these families would spend that money to purchase health insurance? Why? (Recall that the poverty level for a family of four is about $25,000.)
b. How does your answer to part (a) affect your view about whether we should determine the poverty rate by valuing in-kind transfers at the price the government pays for them? Explain.
c. How does your answer to part (a) affect your view about whether we should provide assistance to the poor in the form of cash transfers or in-kind transfers? Explain.
Who is included in the top income quintile?
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