Final answer:
Mandatory spending refers to expenditures required by law, such as Social Security, Medicare, and Medicaid, while discretionary spending is subject to annual legislative adjustments and includes defense, education, and transportation.
Step-by-step explanation:
Spending that is required by law is known as mandatory spending. This includes expenditures that Congress is legally obligated to fund, primarily on entitlement programs and interest payments on the national debt. Examples of mandatory spending are Social Security, Medicare, and Medicaid, which are considered entitlement programs because individuals meeting certain eligibility requirements have a legal right to these benefits. Discretionary spending, on the other hand, is spending that lawmakers can adjust annually through specific appropriations bills. This covers areas like defense, education, and transportation. Mandatory spending accounts for a significant part of the federal budget, with discretionary spending being a smaller proportion, subject to annual legislative decision-making.