Answer to Question #209537 in Microeconomics for Y, Smith

Question

Explain the differences between government purchases and government transfers and give an example of each. Explain how each affects the GDP.

Answer 1

Government purchases is a term that describes the government expenditure on services and goods. The government purchase does not include the computation of transfer payments. The government purchases are simply the government's expenditure of the finished goods. 

Government transfer (government outlays) is the redistribution of revenue and wealth and is achievable when the government makes a payment without receiving services and goods due to the payment. 

The gross domestic product (GDP) increases when the government purchases rise since leisure and consumption fall. An increase in government transfers will decrease the GDP