Consider a local government with preferences represented by U-C0.75 0.25 where C stands for expenditure on local private goods and Estands for expenditure on locally provided education. The local income absent any federal government grant is $100 million. The federal government is considering 3 alternative grant programs: (1) a $40 million block grant; (2) a $40 million categorical grant where the designated category is locally provided education; and (3) a matching grant for locally provided education on a dollar-for- dollar basis. (a) How much does the locality spend on local private goods and locally provided education in the absence of any federal government grant? Provide a graphical representation. (b) How much does the locality spend on local private goods and locally provided education under each of the alternative grans programs? Provide a graphical representation for each grant program (c) Which type of grant results in a larger expenditure on locally provided education? Which type of grant yields a higher level of local social welfare? Justify your answer.

Consider a local government with preferences represented by U-C0.75 0.25 where C stands for expenditure on local private goods and Estands for expenditure on locally provided education. The local income absent any federal government grant is $100 million. The federal government is considering 3 alternative grant programs: (1) a $40 million block grant; (2) a $40 million categorical grant where the designated category is locally provided education; and (3) a matching grant for locally provided education on a dollar-for- dollar basis. (a) How much does the locality spend on local private goods and locally provided education in the absence of any federal government grant? Provide a graphical representation. (b) How much does the locality spend on local private goods and locally provided education under each of the alternative grans programs? Provide a graphical representation for each grant program (c) Which type of grant results in a larger expenditure on locally provided education? Which type of grant yields a higher level of local social welfare? Justify your answer.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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