Question 1

For persons who earn an amount of income such that the Earned Income Tax Credit (EITC)benefit is reduced as they work more,which statement is TRUE?

Accepted Answer

A)  The effect of the EITC on labor supply is ambiguous. 
B)  The substitution effect induces these persons to work less. 
C)  The income effect induces these persons to work more. 
D)  There are no income or substitution effects.

Question 2

Which statement is TRUE in the standard model of labor supply?

Accepted Answer

A)  If the income effect dominates the substitution effect,higher wages lead to a reduction in the quantity of labor supplied. 
B)  If the substitution effect dominates the income effect,higher wages lead to an increase in the quantity of labor supplied. 
C)  Higher wages always lead to a reduction in the quantity of labor supplied. 
D)  Higher wages always lead to an increase in the quantity of labor supplied.

Question 3

If a person responds to a tax on wages by working more,then the:

Accepted Answer

A)  substitution effect exceeds the income effect. 
B)  substitution effect induces the individual to work more. 
C)  income effect exceeds the substitution effect. 
D)  income effect exactly offsets the substitution effect.

Question 4

If the tax rate on income is given by t and the wage is given by w,what is the after-tax wage?

Accepted Answer

A)  w - t 
B)  w - t + 1 
C)  w(t - 1) 
D)  w(1 - t)

Question 5

Suppose a researcher identifies the effect of the Earned Income Tax Credit (EITC)on the labor supply of single mothers by comparing the labor supply of those mothers after the EITC expansion with the labor supply of single women without children before and after the EITC expansion.Which of the following statements would cause the estimates from such a study to be biased?

Accepted Answer

A)  Single women without children tend to work more hours than do single women with children. 
B)  Preferences regarding work among single women with children change over time. 
C)  Single women with children have higher income requirements for their larger family than do single women without children. 
D)  Preferences regarding work among single women with children remain the same over time.

Question 6

The estimates of the effect of wages on labor supply,from the study of a negative income tax system run by President Lyndon B.Johnson's Office of Economic Opportunity between 1968 and 1976,is an example of what type of empirical analysis?

Accepted Answer

A)  random experiment 
B)  cross-sectional regression 
C)  time series 
D)  quasi-experimental

Question 7

For persons who earn an amount of income such that the Earned Income Tax Credit (EITC)benefit is neither increased nor reduced as they work more,which statement is TRUE?

Accepted Answer

A)  The effect of the EITC on labor supply is ambiguous. 
B)  The effect of the EITC is to increase labor supply. 
C)  The EITC does not have a substitution effect. 
D)  The effect of the EITC is to decrease labor supply

Question 8

If the tax rate on income is given by t and the wage is given by w,what is the slope of the budget constraint?

Accepted Answer

A)  -w + t 
B)  w - t + 1 
C)  w(t - 1) 
D)  w(1 - t)

Question 9

(a)What can cause a tax wedge in the market for child care that puts market work at a disadvantage?
(b)The text described two ways the government can remove this tax wedge.Identify them and discuss the advantages and disadvantages of both.

Accepted Answer

The answer of (a)What can cause a tax wedge in...

Question 10

For someone who is receiving a wage subsidy:

Accepted Answer

A)  the effect of the program on labor supply is ambiguous. 
B)  the substitution effect induces the person to work less. 
C)  the income effect induces the person to work more. 
D)  income and substitution effects do not apply.

Question 11

The Earned Income Tax Credit subsidizes the wages of:

Accepted Answer

A)  all families with children. 
B)  hourly workers only. 
C)  low-income earners. 
D)  high-income earners.

Question 12

Suppose that a tax is levied on wages and a woman responds by working less.Which of the following statements is TRUE?

Accepted Answer

A)  The income effect causes her to buy fewer of all goods except leisure. 
B)  The income effect exceeds the substitution effect. 
C)  The substitution effect exceeds the income effect. 
D)  There is no income effect.

Question 13

Which statement is NOT true about the structure of the Earned Income Tax Credit (EITC)?

Accepted Answer

A)  Up to a threshold,EITC pays a certain fixed percent of wage earned. 
B)  EITC pays a fixed amount at a range of income. 
C)  At a particular range of income,government reduces EITC payments based on a lower fixed percent of income earned. 
D)  EITC payments decrease as earnings increase,but everyone qualifies for some amount.

Question 14

Suppose that the spouse of the primary earner in the household is considering joining the labor force.The spouse currently cares for two children and,if employed,would earn $20 per hour for 40 hours per week.The cost of child care would be $15 per hour for 40 hours per week.Assume that child care is tax deductible and that child care at home is NOT imputed and taxed.Assume that the spouse is indifferent between working and staying home except for the financial impact.What would be the marginal tax rate such that the spouse is indifferent between entering the labor force and providing child care at home?

Accepted Answer

A)  0% 
B)  25% 
C)  50% 
D)  100%

Question 15

Suppose a researcher identifies the effect of the Earned Income Tax Credit (EITC)on the labor supply of single mothers by comparing the labor supply of those mothers to the labor supply of single women without children before and after the EITC expansion.This is an example of which type of empirical strategy?

Accepted Answer

A)  cross-sectional regression 
B)  randomized experiment 
C)  quasi-experiment 
D)  structural estimation

Question 16

Suppose the spouse of the primary earner in the household is considering joining the labor force.The spouse currently cares for two children and,if employed,would earn $20 per hour for 40 hours per week.The cost of child care would be $10 per hour for 50 (not 40)hours per week.Assume that the marginal tax rate on work is 50%.Assume that child care is tax deductible and that child care at home is NOT imputed and taxed.What is the after-tax,after-child-care addition to family income of the spouse working each week?

Accepted Answer

A)  $100 
B)  $0 
C)  $150 
D)  $300

Question 17

Which statement about the Earned Income Tax Credit (EITC)is NOT true?

Accepted Answer

A)  Most of the benefits of the EITC go to families making less than $30,000. 
B)  The EITC is refundable. 
C)  The EITC has grown significantly since it was first introduced. 
D)  The EITC reduces tax liabilities only for families paying high taxes.

Question 18

Empirical evidence suggests that the Earned Income Tax Credit (EITC):

Accepted Answer

A)  does not affect men's labor supply. 
B)  reduces the labor supply of married women. 
C)  has significantly increased hours of work for those in the labor force. 
D)  has not caused workers to enter the labor force.

Question 19

Suppose that the spouse of the primary earner in the household is considering joining the labor force.The spouse cares for two children and if employed would earn $20 per hour for 40 hours per week.The total cost of child care would be $10 per hour for 50 (not 40)hours per week.Assume that the marginal tax rate on work is 50%.Assume that child care is NOT tax deductible and that child care at home is NOT imputed and taxed.What is the after-tax,after-child-care value of working per week?

Accepted Answer

A)  -$100 
B)  $0 
C)  $150 
D)  $300

Question 20

Economic analysis of the relationship between taxation and work reveals that:

Accepted Answer

A)  high taxes may discourage work effort,causing output and income to fall. 
B)  tax breaks have very little effect on the decision to work,as with the tax holiday experienced in Iceland. 
C)  when tax rates increase,people react by working longer hours so they will not experience a reduction in after-tax income. 
D)  workers actually pay very little attention to tax changes,so a tax on earnings is optimal.

Exam 21: Taxes on Labor Supply

For persons who earn an amount of income such that the Earned Income Tax Credit (EITC) benefit is reduced as they work more,which statement is TRUE?

Which statement is TRUE in the standard model of labor supply?

If a person responds to a tax on wages by working more,then the:

If the tax rate on income is given by t and the wage is given by w,what is the after-tax wage?

The estimates of the effect of wages on labor supply,from the study of a negative income tax system run by President Lyndon B.Johnson's Office of Economic Opportunity between 1968 and 1976,is an example of what type of empirical analysis?

For persons who earn an amount of income such that the Earned Income Tax Credit (EITC) benefit is neither increased nor reduced as they work more,which statement is TRUE?

If the tax rate on income is given by t and the wage is given by w,what is the slope of the budget constraint?

(a)What can cause a tax wedge in the market for child care that puts market work at a disadvantage? (b)The text described two ways the government can remove this tax wedge.Identify them and discuss the advantages and disadvantages of both.

For someone who is receiving a wage subsidy:

The Earned Income Tax Credit subsidizes the wages of:

Suppose that a tax is levied on wages and a woman responds by working less.Which of the following statements is TRUE?

Which statement is NOT true about the structure of the Earned Income Tax Credit (EITC) ?

Which statement about the Earned Income Tax Credit (EITC) is NOT true?

Empirical evidence suggests that the Earned Income Tax Credit (EITC) :

Economic analysis of the relationship between taxation and work reveals that: