Question

According to data on the ​ site, in 2014 the federal government spent​ $850.5 billion on Social Security payments to retired and disabled people.

Is this federal government spending considered production as measured by​ GDP? Briefly explain.

Answer 1

Spending on Social Security is considered a transfer payment and is not counted in GDP measurements, as it does not reflect new production of goods or services.

Step-by-step explanation:

The federal government spending of $850.5 billion on Social Security payments to retired and disabled people in 2014 is not considered production as measured by Gross Domestic Product (GDP). Within the context of GDP, production refers to the total value of all goods and services produced within a country.

GDP is commonly breaking down into four components: consumption, investment, government spending, and net exports. Social Security payments fall under government spending, but they are transfer payments, meaning they are redistributions of income from one group to another without any new production of goods or services.

Such transfer payments are excluded from GDP calculations because they do not reflect the economy's actual productive activity.