Question: Consider an income guarantee program with an income guarantee of $6,000 and a benefit reduction rate of 50%. A person can work up to 2,000

Consider an income guarantee program with an income guarantee of $6,000 and a benefit reduction rate of 50%. A person can work up to 2,000 hours per year at $8 per hour.

a. Draw the person’s budget constraint with the income guarantee.

b. Suppose that the income guarantee rises to $9,000 but with a 75% reduction rate. Draw the new budget constraint.

c. Which of these two income guarantee programs is more likely to discourage work? Explain.

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