1. Comment on why you think Mr. Bernanke might be concerned with the governments fiscal policy even thought his responsibility is with monetary policy.

With a primary responsibility to use monetary policy to obtain maximum sustainable output and employment and stable prices, Mr. Bernanke would be naturally concerned with how congress applies fiscal policy. For example, if the congress uses the wrong mix of fiscal policy to stimulate the economy it could have an inflationary effect. If so, the Fed would have to counter with monetary policy to cool the inflation. So, in reality, it should not be much of a surprise to hear him comment on fiscal policy although it does not look like he will make specific recommendation.

2. Social Security and Medicare are referred to as entitlement programs. Use any source available to define entitlement programs.

Students should come up with a definition that indicates entitlement programs are programs where Congress authorizes spending by determining particular eligibility criteria rather than a particular amount of spending. Since these programs guarantee a certain level of benefits to eligible people, such as Social Security where a person is eligible at a certain age, there is little room for discretion on how much money to appropriate. This creates a sort of uncontrollable part of the budget which in recent years has trended upward and placed a heavy burden on the budget deficit.

Multiple Choice/True False Questions