Question

The state of Minnegan is considering two alternative methods of funding local road construction, matching grants and block grants. In the case of the matching grant, Minnegan will spend $1 for every $1 spent by localities. What is the price of an additional dollar of local spending in each case?

Answer 1

In the case of matching grants, the price of an additional dollar of local spending is $1 because for every $1 spent by localities, Minnegan will also spend $1. On the other hand, in the case of block grants, the price of an additional dollar of local spending depends on the amount of the block grant and how the state decides to allocate it.

Step-by-step explanation:

In the case of the matching grant, the price of an additional dollar of local spending would be $1 because for every $1 spent by localities, Minnegan will also spend $1. This means the localities have to contribute an amount equal to the federal funding.

For example, if the localities want to spend an additional $100, Minnegan would also have to spend $100. Therefore, the price of an additional dollar of local spending in the matching grant is $1.

In the case of the block grant, there is no specific matching requirement. The block grant is provided as a chunk of money for states to use for more general purposes, so the price of an additional dollar of local spending would solely depend on the amount of the block grant and how the state decides to allocate it.

For instance, if the block grant amount is $1,000 and the state decides to spend an additional $100, the price of an additional dollar of local spending in the block grant would be $100/100 = $1.