Question

1.Joe, Patrick, and Adam are friends. They have the same preference over consumption and leisure. Joe has two jobs. He auditions for sitcoms during daytime and works at CVS at night time. Patrick works from 9 to 5 as a curator at a local museum. Adam is a partner of a law firm and works over time almost every week. Clearly both Joe and Adam work more than Patrick. This is because that

Why the answer is "for Joe income effect dominates while for Adam substitution effect dominates"

2. Why this sentence is correct？

“Earned income tax credit (EITC) is better than welfare as a way to help poor families because, welfare reduces labor supply due to a positive income effect while EITC increases labor supply due to a substitution effect”

3. why: "A temporary increase of one-unit of government expenditures financed by debt should, according to our model, increase GDP by: between zero and one unit."?

4. Why: "The experience of the US economy during World Wars confirms the prediction that a dramatic increase of government spending, increases output but decreases consumption."

↑It would be better if there was a graph to support it.

thanks！！！please answer the whole question！

Answer 1

1) Joe does 2 jobs which implies that increase in income encourages him to work on another job as well. This is a change in working patterns due to change in purchasing power. Thus income effect dominates.

Adam does overtime every week which implies he gets additional and higher income for every hour he overtimes. This is a change in working patterns due to relative change in wage or income. Thus substitution effect dominates.

2) ETIC is based on income you earned. Higher the income lower is tax you need to pay. This encourages people to work and supply labor.

Welfare on the other hand reduced the supply of labour because labour's needs are getting fulfilled with welfare amount. He does not have to work for that.