Why are transfer payments not counted as part of GDP?
A) Counting transfer payments constitutes double-counting when they are used to purchase final goods and services.
B) Most transfer payments are not spent within the United States.
C) Spending by the unemployed and senior citizens is not counted as part of GDP.
D) Transfer payments are always paid back and so they cannot be counted twice.

Question

Quizplus · Accepted Answer

Transfer payments are not counted as part of GDP because counting them would create double-counting of the same expenditure when they are used to purchase final goods and services. For example, if government provides subsidy to a household, and that household uses that subsidy to purchase a good, the good is already counted in the GDP, so counting the subsidy would lead to double-counting.

Why Are Transfer Payments Not Counted as Part of GDP