1. You have just been appointed to evaluate some of the socialprograms. Your mission, which you have no choice but to accept, isto reform De- mogrants and Employment Insurance (EI) because theyare presently not a§ordable and rife with ine¢ ciencies. Onefundamental issue that underlies the reform of demogrants andEmployment Insurance (EI) is the conaÌicting objectives ofproviding adequate income protection on one hand and providing amore e¢ cient incentive structure on the other hand. Explain thenature of the disincentive e§ects that are involved with demograntpayments and the disincentive e§ects that are involved with EI.Your response should be set in the framework of the labour supplymodel, which means a discussion of the income e§ect and thesubstitution e§ects. Support your answer with help of diagrams andat the same time give an intuitive explanation of the economicbehavioural mechanisms.
