Government purchases and transfer payments

Question

Quizplus · Accepted Answer

Government purchases refer to the goods and services bought by the government, which does absorb resources, as it requires inputs and labor to produce them. Transfer payments, on the other hand, are payments made by the government to individuals or groups without any corresponding production of goods or services, so they do not absorb resources. Thus, option B is correct. Option A describes transfer payments, so it is incorrect. Option C is also incorrect, as transfer payments are less inflationary than government purchases since they do not directly increase demand for goods and services. Option D is partially correct as only government purchases absorb resources.

Government Purchases and Transfer Payments