The following diagrams of budget constraints pertain to the next three questions. The vertical axis is Income and the horizontal axis is Leisure.

-Which of the diagrams of budget constraints above depicts the Earned Income Tax Credit program?

Question

The following diagrams of budget constraints pertain to the next three questions. The vertical axis is Income and the horizontal axis is Leisure.
   
-Which of the diagrams of budget constraints above depicts the Earned Income Tax Credit program?

Quizplus · Accepted Answer

The Earned Income Tax Credit program is a refundable tax credit for low- and moderate-income working individuals and families. The credit is designed to offset the payroll taxes that these individuals pay, and it can result in a refund even if the individual does not owe any income tax. The diagram of the budget constraint that depicts the Earned Income Tax Credit program is the one that shows a kink in the budget constraint at the point where the individual's income reaches the threshold for the credit. This kink represents the fact that the credit provides a subsidy to individuals who earn below the threshold, and this subsidy results in a higher after-tax income for these individuals.

The Following Diagrams of Budget Constraints Pertain to the Next