Why are financial transactions like buying stocks or receiving Social Security payments not included in GDP
Answer (2)
Financial transactions like buying and selling stocks, or receiving Social Security payments, are not included in a country’s Gross Domestic Product (GDP) because they do not involve the production of any new goods or services. GDP only measures actual production—things that are made, services that are done, or work that is paid for.Let’s take an example, if you buy shares in a company through the stock market, you’re not buying a product like a bag or a service like a haircut. You are just buying ownership of a piece of that company. That transaction is only a transfer of ownership, from one person to another. Nothing new is produced. That’s why it’s excluded from GDP. The only part that may be counted is the broker’s fee or commission—because that is a paid service.The same goes for Social Security payments or any similar government help like pensions or allowances. These payments are not made in exchange for work. They are considered transfer payments, meaning money is taken from one group (like taxpayers) and given to another (like retirees). Since no production happens when the money is transferred, it is not counted in GDP.In the Philippines, programs like SSS pensions or 4Ps (Pantawid Pamilyang Pilipino Program) are examples of government transfer payments. Even though they help families survive and support the economy in other ways, they are not directly counted as part of GDP because they are not a result of producing something new.In short, for something to be counted in GDP, it must involve actual production. That’s why buying stocks or receiving aid is left out—they don’t create new goods or services.
Financial transactions like buying stocks or receiving Social Security payments are not included in GDP because,GDP measures production of new goods and services within an economy during a specific period.Buying stocks is simply a transfer of ownership of existing assets — no new goods or services are produced in the transaction.Social Security payments are transfer payments, meaning money is redistributed from the government to individuals without any new production or economic output created.
