Question

Unlike the minimum wage, the Earned Income Tax Credit does not:

Select one:

a. maintain the proper incentives to work.

b. cost the government anything.

c. improve the status of the working poor.

d. cause low-wage workers to be laid off.

Answer 1

Unlike the minimum wage, the Earned Income Tax Credit does not:

Answer: (d). cause low-wage workers to be laid off.

[Reason: Minimum wage raises the wage paid per worker which reduces the firm's labor demand and increases the labor supply. This decrease in labor demand causes firms to lay off low-wage workers which are often the unskilled labors. Income tax credit refunds a part of income tax whcih does not cost the firms and they don't lay off workers thus.]

[The other options are incorrect since Income tax credit does give incentive to work harder, and it is a cost to the government since taxes are refunded. Also, Income tax improves the status of the working poor that makes them better off.]