Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Transfer payments are included in GDP calculations.
B
Transfer payments do not directly contribute to GDP.
C
Transfer payments are subtracted from GDP.
D
Transfer payments increase GDP by stimulating production.
Understanding the Answer
Let's break down why this is correct
Answer
Transfer payments, like Social Security or unemployment benefits, do not directly count toward Gross Domestic Product (GDP) because they are not payments for goods or services. GDP measures the total value of all final goods and services produced in a country during a specific period. When the government gives transfer payments, it redistributes money but does not create new economic value. For example, if the government pays someone $1,000 in unemployment benefits, that amount does not increase GDP, but if they use that money to buy groceries, the grocery store's sales do contribute to GDP. Therefore, while transfer payments help individuals, they don't directly add to the overall economic production measured by GDP.
Detailed Explanation
Transfer payments, like welfare or unemployment benefits, give money to people but do not create goods or services. Other options are incorrect because Some might think that all money given out counts as production; It's a common mistake to think that transfer payments reduce GDP.
Key Concepts
GDP definition
Topic
Transfer Payments and GDP
Difficulty
easy level question
Cognitive Level
understand
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