What effect would this policy have on work effort

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Suppose that currently the government provides everyone with a guaranteed income of $10,000 per year, but this benefit level is reduced by $1 for each $1 of work income.

The government is considering changing this policy so that the benefit level is reduced by $1 for every $3 of work income. What effect would this policy have on work effort? Explain your answer and include a graph depicting the two scenarios.

Reference no: EM131104210

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