When analyzing the impact of government consumption and taxes in an open economy, we exclude transfer payments because:
A) they are not paid for by taxes.
B) in the aggregate, they do not generate a change in total spending on goods and services.
C) the sums are so large as to be incalculable.
D) the sums are so small as to be insignificant.

Question

Quizplus · Accepted Answer

Transfer payments are payments made to individuals or households by the government, such as welfare or social security payments. These payments do not directly impact total spending on goods and services in the economy since they are not used to purchase goods and services themselves. Therefore, when analyzing the impact of government consumption and taxes in an open economy, transfer payments are excluded.

When Analyzing the Impact of Government Consumption and Taxes in an Open