Consider two government programs implemented as a result of the pandemic. Assume the pandemic and these two programs take effect now. A one-time stimulus payment today of $10,000 in response to the virus with no expectation of future payments. The institution of an annual child tax credit of $10,000 that a person receives each year for each child until the child reaches age 18. The graph below depicts a person with a permanent income of $80,000, i.e. he earns $80,000 today and expects to earn $80,000 next year. The pandemic hits, but he is able to work from home and his employment is unaffected by the virus. Do a budget line/indifference curve analysis that compares and contrasts the two programs. Specifically answer the following questions:
1. Which point, A-E, does the person start off at before the stimulus payment or the institution of the child tax credit?
2. Which point does each program move the person to? Answer for each program independently.
3. Which pattern of consumption will the person choose given the Permanent Income Hypothesis? Which point on the graph matches this pattern of consumption? Explain.
4. If the goal of the two programs is to increase the current demand for goods and services (Aggregate Demand in Macro-speak) to prevent a virus-related recession, which program is better? Explain. Points will only be awarded if you specifically reference the budget lines, consumption bundles, and indifference curves from the graph.