Problem: 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.
1. Draw the person's budget constraint with the income guarantee.
2. Suppose that the income guarantee rises to $9,000 but with a 75% reduction rate. Draw the new budget constraint.
3. Which of these two incomes guarantee programs is more likely to discourage work. Explain.