Quantitative Problems

1.
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What are the main trade-offs that policy makers face in designing and implementing policies intended to help the poor?
2.
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What is meant by welfare migration? Why is it potentially a serious problem in implementing policies aimed at helping the poor?
3.
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Explain the work disincentives inherent in traditional welfare programs, such as AFDC and TANF, that pay cash benefits to the poor.
4.
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What is the fundamental difference between a traditional welfare program (such as AFDC or TANF) and the EITC on work incentives? Does the EITC ever reduce work incentives? Can it ever induce a beneficiary to drop out of the labor market altogether?
5.
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Why is it that linked-benefit payment schemes— such as linking Medicaid eligibility to enrollment in a welfare program—generate such poor work incentive effects? What is a potential remedy for this problem?
6.
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Why is it that child-support payments increase the work incentives of some individuals and reduce the work incentives of others?
7.
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What are the primary factors that account for the startling reduction in the number of welfare participants that occurred between 1995 and 2002?
8.
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Suppose that a worker's utility is given by , where $c is consumption, and is her leisure time. Assume that she has no unearned income, and that the hourly wage rate is w = $5.75 per hour.

(a) How many hours does she work? What are her consumption and utility levels?

(b) Now suppose that the government introduces a welfare program that provides a lump-sum cash transfer of $36 to nonparticipants and sets the BRR = 1. Does this affect her behavior? If so, how?

Hint: Her marginal rate of substitution between consumption and leisure is .

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