Which of the following best describes how transfer payments affect the Gross Domestic Product (GDP)?

Transfer payments are payments made by the government to individuals without expecting anything in return, like social security or unemployment benefits. These payments do not directly count towards Gross Domestic Product (GDP) because they are not payments for goods or services produced in the economy. Instead, they help individuals and families by providing financial support, which can lead to increased spending in other areas. For example, when someone receives unemployment benefits, they may use that money to buy groceries or pay rent, which does contribute to GDP. So, while transfer payments themselves don’t count as part of GDP, they can influence economic activity through increased consumer spending.