The Impact of an Unconditional Block Grant on the Town’s Budget Constraint • When Lexington
is offered an unconditional block grant of $375,000, the budget constraint shifts outward from AB to DE.
Lexington chooses point Z on DE, as it spends $75,000 more on education (with education spending
rising from $500,000 to $575,000) and $300,000 more on private goods.