Transfer Payments as Non-Productive Government Spending

Steps:

• Define transfer payments: Government payments to individuals or firms without receiving goods or services in return, like welfare or pensions.
• Identify the question's focus: Distinguish transfer payments from government purchases or investments.
• Evaluate each option: Check if it involves direct payments without exchange for production.
• Select the match: Choose the option that fits the transfer payment definition.

Why B is correct:

• Transfer payments include pensions, which are government benefits to retirees without expecting goods or services, per national income accounting definitions.

Why the others are wrong:

• A: Reallocation between defense and education is government spending on goods/services, not transfers.
• C: Infrastructure spending is government investment in productive assets, classified as gross fixed capital formation.
• D: Police salaries are compensation for labor services, part of government consumption expenditure.

Final answer: B