Which of the following statements about transfer payments are correct?
1) Transfer payments are made by the government to households.
2) Pension, scholarship etc. are not a part of the transfer payments.
3) Transfer payments are often used as a means of redistributing income within a society.
Show answer & explanation
Correct answer: D
Explanation
The correct answer is Option 4 i.e. 1 and 3 only.
The correct statements about transfer payments are:
- Transfer payments are made by the government to households. This includes payments such as pensions, scholarships, unemployment benefits, and subsidies.
- Transfer payments are commonly used to redistribute income within a society, aiming to reduce income inequality. By providing financial assistance to individuals and families with lower incomes, these payments help balance economic disparities and offer support to those in need.
Statement 2 is incorrect because pensions, scholarships, and similar payments are indeed considered transfer payments.