ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Transfer payments are not counted. An everyday example of a transfer payment would be a welfare check received by a household. When calculating GDP, transfer payments are excluded because nothing gets produced. Money is simply transferred from one group to another.

Detailed explanation-2: -Transfers are not included in GDP, because they do not represent production. Production of non-marketed goods and services-such as home production like when you clean your home-is not counted because these services are not sold in the marketplace.

Detailed explanation-3: -GDP ignores the welfare component as the goods and services produced may or may not add to the welfare to a society. For example, the production of goods, like guns, narcotic drugs, high-end luxurious goods increase the monetary value of production, but they do not add to the welfare of the majority of population.

Detailed explanation-4: -Transfer payments are not incorporated in the GDP because there are no goods or services offered in exchange for them. Such payments are only meant to accomplish social ends. Common examples of transfer payments in the United States include social security, Medicaid, and Medicare.