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1. a. Cite two major differences between AFDC and TANF.
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about $150 per week in AFDC. Angie did
not graduate from high school, so let us
assume she earned $5.00 per hour (a bit
more than the minimum wage of $4.25 at
the time.) The author noted that AFDC
reduced her benefits by about 60 cents for
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every dollar she earned. In the space to the
right, draw her budget line using the laborleisure model. Label it AB. Very caref~~lly 9 3 0 0 .label and number the axes.
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d. Like many people in the book, Angie did not tell the welfare office she was employed. If that
were the case, draw her actual budget line and label it CD. For clarity, draw +++++ along CD
so I know which line it is.
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e. If someone followed the rules and reported their earnings to the welfare office, and as a
result had their payment adjusted, would this have a positive or negative impact on the hours
they work? Explain. (In other words, what impact did M D C have on people's employment
compared to no such program?) Please use the diagram above to help explain your answer.
2. The United States Social Security System is a pay-as-you-go system.
a. Explain what this means.
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b. Who gets a higher ret~u-non their social security contributions; high income or
low income workers? Explain why.
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c. Cite one group in the population that receives a higher than average return on
their social security contributions?
d. What impact do social security benefits have on labor supply? Explain, using the
labor leisure model diagram. Carehlly label and explain all parts of the graph.
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transition issue. Please explain what the transition issue is.
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3. Suppose the City of Delaware is considering doing a cost-benefit analysis to dam up the
Olentangy River and build a lake for recreation.
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a. In class we noted there are direct benefits and indirect benefits from such a
project. Please give an example of each within the context of this example of a
dam and lake.
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b. We not in class and osen notes in the text that the government frequently uses
a discount rate of seven percent net of inflation. Rosen notes that there is a more
appropriate rate and also as discusses some of the factors that enter into the .
picture in choosing a social discount rate'for government projects. State either
what he suggests might be used as the appropriate government discount rate or
one of the factors to be coilsidered in setting the social discount rate.
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c. If we examme the cost and benefits we fin&
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$30,000
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$10,000
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Using a ten percent discount rate, please calculate the present value of both the
costs and benefits.
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d. Should the dam be built? Explain why.
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4. a. Please explain the difference in populations served by Medicare and Medicaid.
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c. We have noted the six marltet failures and two other reasons for government
the economy. Please give two of these as reasons for the government to intervene in the
marltet for health care. Explain each.
d. We have noted in class the health care expenditures are a large share of GDP and will be
increasing. Please take one of the methods we have discussed in class for limiting health care
expenditures and explain it. Would you favor the adoption of this method? Explain why,
including the impact that the chosen method would have on health care and health care
expenditures.
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5. Summarize either of the two Leonhardt readings on health care.
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6. There are two main methods to determine the value of a life in a Cost-Benefit Analysis.
Briefly describe both.
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7. Briefly describe how the Unemployment Insurance system worlts in the U.S., i.e., how it is
funded, who runs it, who is eligible. What impact doesthe program have on unemployment?
Explain why.
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8. What is meant by moral hazard in the terms of health insurance?
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9. I mentioned in class the idea of Jon Gn~berthat we can view the marginal benefit of health
care and the fact that the US is on the flat end of the curve. Please recreate the diagram, label the
axes and explain why this is important in terms of explaining overall health care expenditures.
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10. Give an example of an in-kind transfer. From our
kind transfers are used as opposed to cash transfers.
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11, a Briefly expla~nwhat the Earned Income Tax Credit (EITC) is.
b. What is the phase-out under the EITC?
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c. Suppose the phase-in range of the EITC was increased from its current level of 40% up to
60 %. What impact would this have on the supply of labor? Why?
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