Final answer:
Transfer payments are government disbursements to individuals that do not result in an exchange for goods or services, such as Social Security and unemployment benefits. Although they help recipients contribute to the economy, they are not included in GDP calculations because they do not reflect direct economic production.
Step-by-step explanation:
Transfer payments are a form of expenditure where the government provides funds to certain individuals without receiving goods or services in return. These include Social Security, disability for military service, welfare, or unemployment compensation. Although transfer payments enable recipients to participate in the economy, they do not factor into the Gross Domestic Product (GDP). The computation of GDP only includes government spending on goods and services produced in the economy, like infrastructure projects and other government purchases. The rationale behind this exclusion is that transfer payments are income transfers from taxpayers to others, rather than payments for goods or services that reflect economic production.