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If the government gives an unemployment allowance, why is it not directly added to GDP?

Answer and explanation

Correct answer: It is not a payment for current production

An unemployment allowance is a transfer payment: the government transfers purchasing power to a person without receiving a currently produced good or service in return. GDP measures the value of current production, so the allowance itself is not counted as production. If the recipient later spends it on newly produced goods or services, that resulting expenditure may enter GDP through the relevant component. Therefore, option A is correct.

Related tags

Transfer PaymentUnemployment AllowanceGdpCurrent ProductionGdp And WelfareNational Income And Related AggregatesEconomicsClass 11 Mcq

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