Explain why transfer payments are not included in GDP

IS: Sexton, R. L. (2013). Exploring Economics (6th ed.). South-Western Cengage Learning.




  1. Compare and contrast the three types of unemployment, (frictional, structural, and cyclical).  If you were a policy maker which type of unemployment would be most bothersome to you?
  2. What costs are associated with inflation?  Explain at least 3 different costs that individuals or businesses experience when inflation rises.
  3. Explain why transfer payments are not included in GDP.


4.     Using the components of GDP covered in section 22.1 of your text, explain which component would be affected by the following (only one component should be chosen for each scenario):


a.  You buy an Italian purse.


b.  You buy a new house.


c.  New lanes are added to Interstate 40.


d.  You buy groceries.


e.  You buy a new washer and dryer.


5. Suppose the economy is at a macroeconomic equilibrium as is shown in section 25.6 of the text.  The government decides to give every taxpayer a $500 tax refund.


a.  What happens to the aggregate demand curve after the refund?


b.  What happens to the price level after this change?


c.  Is real wealth increased or decreased as a result of the refund?


Approximately 250 words