HW1 - University of Illinois at Urbana-Champaign Professor...

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University of Illinois at Urbana-Champaign Professor Ron Laschever, ECON 440, Spring 2010 1 Problem Set #1 Due in class by Thursday, January 28, 10:59 AM CST 0. Make sure you have read the syllabus, and be sure to ask in class if something isn’t clear about it. 1. Indicate whether each statement is true or false, and support your answer with a 1-3 sentence explanation. If part of a statement is false, then the whole statement is false. a. The unemployment rate will change if a worker, after being fired from his job, decides to stay at home with his children, paint the house, build model cars, and does not pursue any paid employment. b. The argument that women’s labor force participation may fall as their husbands’ wages rise during the early stages of economic development is an example of the substitution effect . c. An advantage of the Earned Income Tax Credit over other welfare programs is that it provides incentives for all recipients to increase their labor supply. By contrast, the AFDC program that existed prior to 1996 provided incentives for all recipients to reduce their labor supply. (Note: The EITC is discussed in Section 2.11 of your textbook.) 2. Fun with budget constraints: Understanding how different policies affect individuals’ budget constraint is the key to understanding how the policies affect incentives. This problem asks you to
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This note was uploaded on 10/24/2010 for the course ECON 440 taught by Professor Staff during the Spring '08 term at University of Illinois, Urbana Champaign.

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HW1 - University of Illinois at Urbana-Champaign Professor...

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