Final answer:
The most restrictive type of grant is a categorical grant, which requires adherence to strict criteria and is used for specific purposes like Medicaid. Unlike block grants or revenue sharing, categorical grants limit how funds can be used, often requiring matching funds from states.
Step-by-step explanation:
The type of grant that is most restrictive is a categorical grant. Categorical grants are federal transfers designed to limit recipients’ discretion in the use of funds and require adherence to strict administrative criteria. These grants often necessitate matching funds and are used for specific purposes such as Medicaid or the food stamp program. In contrast, block grants and revenue sharing offer more flexibility, with block grants allowing for broader use within general purpose categories and revenue sharing having the fewest restrictions on federal funds, especially historical examples prior to their abolition in 1986.
One notable example of categorical grants at work is in times of national emergencies, such as during Hurricane Katrina or Hurricane Sandy, where specific amounts are allocated based on various factors like state population and may require states to contribute a portion of the cost. Block grants, preferred by states for their flexibility, can still be subject to limitations through processes like 'creeping categorization.' Hence, the correct answer to the question about the most restrictive type of grant is B) federal grant in aid, also known as a categorical grant.