An example of transfer payments in national income accounting is

Step 1: Analyze the question The question asks for an example of a transfer payment in national income accounting.

Step 2: Explain the concept A transfer payment is money paid by the government (or other bodies) to individuals without receiving any goods or services in return. It does not reflect current production, so it is not included in GDP/national income calculations. It simply moves income from one group to another.

Common examples:

• Unemployment benefits/allowance
• Pensions
• Social security payments
• Subsidies
• Scholarships and grants
• Gifts and remittances

Step 3: Evaluate each option

• A. Money transferred to another country: This is a capital or financial flow, or possibly a remittance. It isn't the standard example of a transfer payment in national income accounts.
• B. Unemployment allowance paid to citizens: The government pays money to people who provide no current service in exchange. This is a classic transfer payment. ✔
• C. The amount paid to a worker on transfer: This is a salary or relocation allowance for work done, so it is payment for services, not a transfer payment.
• D. Transfer of funds from one bank to another: This is a financial transaction. No income is created or redistributed.

Step 4: Answer

Step 5: Exam tip Ask yourself: "Did the receiver give any goods or service for this money?" If the answer is no, it is a transfer payment (for example pensions, unemployment benefits, subsidies). Remember: transfer payments are not counted in GDP because they do not come from production.