Why is pension generally not included in GDP?
Answer and explanation
Correct answer: Because it is generally a transfer payment and not payment for current production
A pension is generally a transfer payment: the government or an institution transfers purchasing power to a retired person without receiving a newly produced good or service in exchange. GDP measures the market value of final goods and services produced during the current period, so the pension payment itself is not counted. However, the retiree’s later spending on currently produced goods and services can contribute to GDP.
Frequently asked questions
What is the correct answer to this question?
Because it is generally a transfer payment and not payment for current production
Why is this the correct answer?
A pension is generally a transfer payment: the government or an institution transfers purchasing power to a retired person without receiving a newly produced good or service in exchange. GDP measures the market value of final goods and services produced during the current period, so the pension payment itself is not counted. However, the retiree’s later spending on currently produced goods and services can contribute to GDP.
Which subject and chapter does this question cover?
This is a Class 11 Economics question. Chapter: National Income and Related Aggregates. Topic: GDP and Welfare.
