Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Transfer payments increase GDP directly as they are counted as consumption expenditure.
B
Transfer payments do not directly contribute to GDP since they are not payments for goods or services.
C
Transfer payments can only be included in GDP when they are saved.
D
Transfer payments are a crucial part of the investment component of GDP.
Understanding the Answer
Let's break down why this is correct
Answer
Transfer payments are funds given by the government to individuals or groups without expecting anything in return, such as social security benefits or unemployment payments. These payments do not directly increase the country’s GDP because they are not payments for goods or services produced. Instead, they help people who may spend that money on various needs, which can indirectly boost consumption in the economy. For example, if a person receives unemployment benefits and spends that money on groceries, it can help support local businesses, which may then contribute to GDP growth. So, while transfer payments themselves don't count towards GDP, they can still play a role in supporting economic activity.
Detailed Explanation
Transfer payments are money given by the government to people without getting anything in return. Other options are incorrect because Some might think that transfer payments count as spending; This option suggests that only saved transfer payments count.
Key Concepts
Consumption expenditure
Topic
Transfer Payments and GDP
Difficulty
easy level question
Cognitive Level
understand
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