Western Governors University (WGU) ECON5000 C211 Global Economics for Managers Practice Exam

Question: 1 / 400

Why are transfer payments excluded from government expenditures in GDP calculations?

They do not change household income

They are payments to foreign governments

They are not made in exchange for currently produced goods or services

Transfer payments are excluded from government expenditures in GDP calculations because these payments are not made in exchange for currently produced goods or services. Instead, transfer payments, such as social security benefits, unemployment benefits, and welfare payments, are distributions of income from the government to individuals or groups without any reciprocal provision of goods or services. Since GDP measures the total economic output and value generated in a given period, including only transactions that reflect current production, it does not account for these payments. This distinction is crucial for accurately assessing economic performance based on actual production and market activity.

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They are illegal under GDP accounting rules

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