Chapter 10: Problems | ||||||||||||
5. Using the transfer equation, solve for each of the following:
a. In order to solve for the transfer reduction rate, recall that the break-even net income (BENI) is equal to the basic transfer (BT) divided by the transfer reduction rate (TRR):
| BENI = BT/TRR.
| Rearranging this equation we find that the transfer reduction rate is equal to the basic transfer (BT) divided by the break-even net income (BENI) or:
| TRR=BT/BENI.
| Using this equation we find a transfer reduction rate of .25 ($500/$2,000).
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b. The transfer received by the individual is given by:
| T = BT- TRR(NI).
| T is the transfer, BT is the basic transfer, TRR is the transfer reduction rate, and NI is net income. Using this equation we find the transfer to be equal to $250 ($200 + 0.5(100)).
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c. The break-even net income is equal to the basic transfer divided by the transfer reduction rate:
| BENI = BT/TRR.
| Plugging numbers into this equation we find the break-even net income to be $1,200 ($360/0.3).
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8. "Extending Medicaid to cover all of the working poor would significantly increase the opportunity cost of medical care." Is this statement true or false? Defend your answer.
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