Which of the following is NOT an example of transfer payments given by the government to the households?
Show answer & explanation
Correct answer: B
Explanation
Correct Answer: Option 2: Interest on National Debt
Explanation:
Transfer payments are payments made by the government to households or individuals without exchange for any goods or services.
Pensions, scholarships, and awards are direct benefits to households, so they are examples of transfer payments.
Interest on the national debt is not direct aid to households, but rather a payment made on a loan taken by the government. Therefore, it does not qualify as a transfer payment to households.
Additional Facts:
Unilateral payments: Transfer payments are also called 'unilateral payments' because the recipient does not have to perform any productive work in return.
National Income: Transfer payments are not included in the calculation of national income because they do not result in any new production.
Example: Unemployment allowance, old-age pensions, and subsidies also fall in this category.
Possible questions for the upcoming exam:
What is not included when calculating national income?
(Answer: Transfer Payments).
Subsidies are part of which type of government expenditure?
(Answer: Transfer Payments).
What is the main difference between transfer payments and factor income?
(Answer: Factor income is received in exchange for services, while transfer payments are received without any services).