Why are transfer payments excluded from GDP calculations despite their impact on the economy?

Transfer payments are excluded from GDP calculations because they do not represent the production of goods or services. GDP, or Gross Domestic Product, measures the total value of everything produced in a country within a specific time period. Transfer payments, like Social Security or unemployment benefits, are funds transferred from the government to individuals without any exchange of goods or services occurring. For example, when the government gives money to someone who is unemployed, it helps that person, but it doesn’t add to the overall production of the economy. While these payments can influence spending and stimulate economic activity, they are not counted in GDP because they do not reflect new economic output.