How do transfer payments influence consumption expenditure and the multiplier effect in an economy?

Transfer payments are money given by the government to individuals without expecting anything in return, like social security or unemployment benefits. When people receive these payments, they often use the money to buy goods and services, which increases consumption expenditure in the economy. For example, if a family receives a monthly welfare payment and spends it on groceries, the grocery store benefits from that spending. This spending can lead to the multiplier effect, where the money spent circulates through the economy, causing businesses to hire more workers or invest in new products. As a result, transfer payments can help boost economic activity by increasing overall demand.