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If the Federal Government Gives a Grant to a State

Question 19

Multiple Choice

If the federal government gives a grant to a state to spend only on education and total state education spending does not increase at all,which of the following is TRUE empirically? Assume that education is a normal good.


A) There is a flypaper effect.
B) There is a substantial substitution effect.
C) There is NO income effect.
D) There is both an income effect and a substitution effect.

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