There are two types of matching grants. The one presented in the text is actually an ‘‘open-ended’’ grant because there is no limit to the amount of money that will be provided by the grant program, as long as the local government allocates the required matching funds. The other type of matching grant is called ‘‘closed-ended’’ because there is a limit to the amount of the grant. For example, suppose that the matching grant program has a matching rate of $1 for $1, but that the maximum amount of the grant is $1 million.

a. Along the lines of Figure 14.8, draw the budget constraint for the local community under this closed-ended grant program.

b. Compare the effects of these two types of matching grants on the amount spent for the local public good. Assume that both programs have a matching rate of $1 to

$1, but that the closed-ended grant program has a maximum grant of $1 million.