True federal power lies in money (incentive through direct provision and disincentive through taxation).

• A. True
• B. False
• C. Depends on the issue
• D. Only in military power

Answer: (A)

Fiscal federalism shows that the federal government can shape policy powerfully through money. By providing funds for programs, offering grants (often with conditions), and tying federal dollars to national priorities, the center incentives states and localities to act in particular ways. Tax policy adds another lever: taxes and tax incentives can encourage certain behaviors or activities, while funding cuts or penalties can deter others. This combination—direct provision of funds and the strategic use of taxation—gives the federal government broad influence across many policy areas, not just defense. While military power matters, money through grants and taxes is the more pervasive mechanism for national impact, making the statement true.