A government is considering two alternative policies to make child care more affordable.

The first policy is a per-hour subsidy on child care services, paid to families.

The second policy is a cash grant, paid to families, equal to the value of the total amount of subsidies the average family receives.

For consumers, the difference between the per-hour subsidy and the lump sum cash grant is that:

Group of answer choices

The subsidy involves only a substitution effect while the cash grant involves only an income effect.

The cash grant involves an income and substitution effect while the subsidy involves only an income effect.

The subsidy involves an income and substitution effect while the cash grant involves only an income effect.

The cash grant involves an income and substitution effect while the subsidy involves only a substitution effect.

There is no difference between the cash grant and the subsidy because they are revenue equivalent.