Question

A government program guarantees $18,000 in income, even for those who do not work at all. If the recipient earns income by working, then the $18,000 benefit is reduced by 50 cents for each $1 earned. Will this program eliminate the poverty trap

Answer 1

Question Options:

Yes, enacting such a program will eliminate the poverty trap.

No, enacting such a program may still reduce the incentive to work.

Yes, and enacting such a program will cost the government less money.

Yes, enacting such a program will create adequate incentive to work.

Answer:No, enacting such a program may still reduce the incentive to work.

Explanation: Poverty trap can be defined as a self-reinforcing cycle which allows poverty to persist. This poverty trap is the worst form of poverty. In this situation an increase in someone's income is offset by a consequent loss of state benefits, leaving them no better off.