Q3: Some people argue that unemployment benefits (i.e., cash payments by the government to people who are unemployed) help stimulate the economy. The reasoning is that without the benefits, the incomes of unemployed people would be lower, and thus their spending on goods and services would be lower. Keeping in mind that (i) to collect unemployment benefits one must be unemployed, and (ii) the benefits are generally no more than 40-50% as large as the typical earnings of people when working:

A) Explain how do unemployment benefits change the incentive to be employed?

B) Is it possible that a system of unemployment benefits could actually cause total spending in the economy to fall? Explain.

Q4: Analyze how each of the following hypothetical policy changes would affect people's decision to retire. Would the change induce people to retire sooner or later? Explain your reasoning:

A) An increase in the age at which one can receive full Social Security benefits (currently age 66-67 depending on the year of birth)

B) A decrease in the fraction (currently 75%) of full benefits that one can receive if retirement occurs at age 62.

C) An increase in the Medicare eligibility age from its current level of 65.

D) An increase to 100% from its current 85% in the maximum fraction of Social Security benefits that is subject to the federal income tax.