Transfer payments are excluded from GDP calculations because they represent a redistribution of income rather than the creation of new goods or services, indicating that they do not contribute to economic production.

Transfer payments are payments made by the government to individuals without expecting anything in return. These payments include things like social security, unemployment benefits, and welfare. They are excluded from GDP calculations because they do not involve the production of new goods or services; instead, they simply redistribute money that already exists in the economy. For example, when the government gives someone unemployment benefits, it does not create a new job or product; it just helps that person financially during a tough time. Therefore, while transfer payments are important for supporting individuals, they do not directly contribute to the overall economic output measured by GDP.