Multiple Choices (22 problems x 2 points = 44 points) Question 1. In the US, the Earned Income Tax Credit (EITC) is a tax credit for low-wage workers as a type of subsidy on their labor supply. For example, you can earn $15 per hour and the government gives you an additional $1 if you work. A(n) (1) in wage per hour by receiving EITC has low-wage workers earn (2) income, which causes (3) Therefore, consumption (4) the consumption. by the income effect and the substitution effect (5) Now, we have two scenarios under two different assumptions on the relative size of in- come and substitution effect. First, if the substitution effect is (6) the income effect, then workers work more since they might feel their opportunity cost of leisure is too high to spend their time on leisure. Second, if substitution effect is (7) than income effect, then worker enjoy leisure more since the workers might think their income is higher enough to enjoy more leisure than before. Choose the best description for each blank to complete the right explanation. (1) (a) increase/(b) decrease / (c) no change (2) (a) higher/ (b) lower / (c) the same amount of income (3) (a) a negative income effect and a substitution effect/ (b) a positive income effect and a substitution effect/ (c) only a positive income effect / (d) only a negative income effect (4) (a) rises/ (b) falls/ (c) does not change (5) (a) increases/ (b) decreases/ (c) does not affect (6) (a) larger than / (b) smaller than/ (c) equal to (7) (a) larger than/ (b) smaller than / (c) equal to 2