Question

Layla earns wages of $29,500 per year. She qualifies for about $7,500 in housing credits, which raises her overall income to $37,000. Housing credits are withdrawn for anyone earning more than $30,000 per year.

a. If Layla earns an extra $2,000 per year, her overall income would  (Click to select)  increase  decrease  by $

b. Now suppose instead that housing credits are withdrawn gradually at a rate of $500 per each $1,000 that someone is earning above the wage limit of $28,500 per year. If Layla again earns an extra $2,000 per year above her original wage of $29,500 per year, how large would her housing credits be?

c. Based on the housing benefit plan with a gradual withdrawal of housing credits, would Layla's overall income increase or decrease when she earns an extra $2,000 per year in wages?

Layla's overall income would be  (Click to select)  lower  higher  the same   after she earns the extra $2,000 per year.

Answer 1

We have the following information

Layla’s Income = $29,500 per annum

Housing credit = $7,500

Layla’s income with housing credit = $37,000 per annum

Part a) Layla earns extra $2,000. So, her income without housing credit is $31,500

Since, housing credit is withdrawn for people having annual income more than $30,000 so Layla will not get housing credit. As a result, her new annual income would be $31,500.

So Layla’s income decreases by $5,500

Part b) Now it is given that housing credits are withdrawn gradually at a rate of $500 per each $1,000 that someone is earning above the wage limit of $28,500 per year. Moreover, Layla again earns an extra $2,000 per year above her original wage of $29,500 per year.

Layla’s annual income without housing credit is $31,500. Since she earns $3,000 more than the wage limit for housing credit so her total deduction would be $1,500 as $500 is to be deducted for every $1,000 above the wage limit.

Layla’s total annual income = $(31,500 + 7,500 – 1,500)

Layla’s total annual income = $(31,500 + 6,000)

Layla’s housing credit is $6,000

Layla’s total annual income = $37,500

Part c) With the housing benefit plan with a gradual withdrawal of housing credits Layla's overall income increase when she earns an extra $2,000 per year in wages.