Why are transfer payments excluded from GDP calculations despite their impact on consumer spending?

Transfer payments are excluded from GDP calculations because they are not payments for goods or services produced in the economy. Instead, these payments, like social security or unemployment benefits, are financial transfers from the government to individuals. While they can increase consumer spending since people use this money to buy things, they don't reflect actual production or economic activity. For example, if the government gives someone $1,000 in unemployment benefits, that money might be spent on groceries, but it doesn’t indicate that any new goods were created. Therefore, while transfer payments can influence the economy, they don’t directly contribute to the total value of all goods and services produced, which is what GDP measures.