Why are transfer payments excluded from GDP calculations?

Transfer payments are excluded from GDP calculations because they do not reflect the production of goods and services in the economy. GDP measures the total value of all final goods and services produced within a country during a specific period. Transfer payments, such as social security or unemployment benefits, are simply money given from one group to another without any exchange of goods or services. For example, if the government gives $1,000 to a person without requiring anything in return, this does not contribute to the economy's production and therefore does not count towards GDP. Including these payments would inflate GDP figures without indicating actual economic activity.