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CA Foundation · Business Economics · Determination of National Income

Which of the following is correctly identified as a transfer payment and should be excluded from the measurement of National Income?

Unemployment benefits are transfer payments and must be excluded from national income because they represent redistribution of existing income without corresponding production of new goods or services.

  1. ASalary paid to a government teacher for conducting classes
  2. BUnemployment benefit received by a laid-off factory workerCorrect
  3. CCommission earned by a real estate agent on selling a property
  4. DWages paid to a construction worker for building a bridge

Explanation

Transfer payments are those without any corresponding production of goods or services in the current period. Unemployment benefits are welfare payments made by the government without receiving any productive service in return. The teacher's salary, real estate commission, and construction wages are all payments for current productive services and must be counted. Transfer payments do not add to GDP.

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