Reshma receives Rs 3000 per month as pocket money. His father asked her, " Reshma, if you tell me, whether, the pocket money which i give you every month is a transfer payment or factor payment, i will increase your pocket money by Rs 500". What do you think was her reply?
Answer & explanation
Correct answer: option 1
The correct answer is option 1: It is a transfer payment
- Transfer Payment refers to income received without providing any productive service in return. Examples include pocket money, pensions, scholarships, and unemployment benefits.
- Factor Payment is income earned by providing a productive service (such as wages for labor, rent for land, interest for capital, or profit for entrepreneurship).
- Since Reshma receives ₹3000 as pocket money without offering any productive service in return, her reply would be: "It is a transfer payment."