CA Foundation · Business Economics · Public Finance
In public finance, expenditure by the government on pensions, unemployment allowances and subsidies to poor households, for which no goods or services are received in return at that time, is classified as:
Such spending is called transfer payments. The government gives money, such as pensions, subsidies and allowances, without receiving any current goods or services in return. It only redistributes purchasing power, unlike exhaustive expenditure, where the government buys resources or output directly.
- ATransfer paymentsCorrect
- BExhaustive expenditure
- CCapital receipts
- DRevenue receipts
Explanation
Transfer payments move income from one group to another without any current output being obtained by the government in exchange. Exhaustive (purchase) expenditure, by contrast, directly absorbs resources, such as paying salaries to government employees or buying defence equipment. Receipts are inflows, not expenditure.
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