If the government increases unemployment benefits while total production remains unchanged, what is the direct effect on GDP?

Correct answer: There will be no direct effect because it is a transfer payment

The governing concept is that GDP measures the market value of currently produced final goods and services. Unemployment benefits are transfer payments: they redistribute purchasing power but are not payments for newly produced output. Therefore, with total production unchanged, GDP does not directly change. Government purchases of goods or services would enter GDP, but transfers themselves do not.