Question

Transfer payments are payments that:

a. are essentially tax refunds.
b. erode the purchasing power of the economy.
c. governments make to households even if the government did not receive a good or service from the household.
d. governments make to households when the government receives a good or service.

Answer 1

Transfer payments are payments that the government makes to a household even if the government did not receive a good or service from the household. Transfer payment examples are services like disability, social security, financial aid and other subsidies. Those on social security and benefits like this are not expected to give something to the government to earn these in their current state. Think of a transfer payment as a "gift" and do not need anything in return for use.