Future Business Leader Achievments (FBLA) Economics Practice Exam

Which of the following is NOT an example of a federal government transfer payment?

1. Social Security benefits

2. Subsidies to firms to promote business overseas

3. Tax expenditures that result from income tax deductions

4. Employee salaries

The correct answer is: Employee salaries

Transfer payments are payments made by the government to individuals or groups without any expectation of goods or services in return. These payments are typically intended to support those in need or promote certain economic activities. Employee salaries, particularly those paid to federal employees, are wages for services rendered and do not qualify as transfer payments. In this context, they are a payment for labor, which means they serve a different purpose than the other options listed, which either provide support or incentives without a direct exchange of services. In contrast, Social Security benefits represent a transfer of wealth from the government to retirees and disabled individuals, making them a clear example of a transfer payment. Subsidies to firms to promote business activities also fall under transfer payments because they are financial assists aimed at encouraging specific economic behavior without expecting direct compensation. Similarly, tax expenditures, such as income tax deductions, result in a loss of tax revenue for the government, which indirectly puts money back into the hands of taxpayers, aligning with the idea of transfer payments. Thus, employee salaries stand apart as they are compensation for work done, highlighting why this option is not categorized as a federal government transfer payment.