How do transfer payments, such as those from social welfare programs, impact GDP when considering income redistribution and economic stimulus?

Transfer payments, like those from social welfare programs, are money given by the government to individuals without requiring anything in return, such as unemployment benefits or food assistance. While these payments do not directly count toward Gross Domestic Product (GDP) because they are not payments for goods or services, they play a crucial role in income redistribution. By providing financial support to lower-income individuals, transfer payments increase their purchasing power, which can lead to higher spending on essential goods and services. For example, if a family receives food stamps, they can buy more groceries, which helps local businesses and can stimulate the economy. Overall, while transfer payments do not add to GDP directly, they can influence economic activity positively by boosting demand.