Payments made by the government that do not require an exchange of economic activity in return are also known as Transfer Payments.
What are transfer payments?
A transfer payment refers to when the government pays for something that would not result in the government getting any goods or services as a result. In other words, these types of payments do not require any exchange of economic activity in return for the payments made by the government.
This means that the transfer payments do not contribute as much to the economy. As a result, they are not counted when a country is calculating government spending for the purposes of Gross Domestic Product. Examples of transfer payments include things like unemployment benefits and insurance, and Social Security payments. However, with taxes paid on these, the government recuperates some of them and is then able to spend on other things as well.
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