Answer to Question 1
Answer: An ideal response will:
1. Explain how Social Security is not funded as a typical pension program. Rather, current workers pay the benefits of current retirees.
2. Explain that receipts currently exceed benefits with the surplus deposited in the Social Security Trust Fund. However, the federal government has used that money (loaned money to itself) to pay for other expenses.
3. Explain that Social Security will soon start paying out more in benefits than it receives in taxes because there are fewer workers paying for an increasing number of retirees.
Answer to Question 2
Answer: An ideal response will:
1. Discuss the two philosophies for addressing these problems: monetary policy and fiscal policy. Note that Congress implements fiscal policy, while the Federal Reserve Board implements monetary policy.
2. Explain how Congress can cut taxes or increase spending to address unemployment.
3. Note that Congress cannot do much to affect inflation, which is usually addressed through monetary policies that constrict the money supply.
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