What is the main purpose of transfer payments?

The main purpose of transfer payments is to support individuals without the exchange of goods or services. Transfer payments are financial transactions made by governments to individuals, often aimed at assisting those who are in need, such as the elderly, unemployed, or low-income families. These payments can include welfare benefits, unemployment compensation, social security, and other similar programs.

By providing financial assistance directly to individuals, transfer payments help to reduce poverty, provide a safety net during economic downturns, and promote overall economic stability. The key characteristic of transfer payments is that they do not require any direct return in the form of goods or services, making them distinct from other types of government spending which may be directed towards infrastructure, services, or corporate subsidies.

The other options do not accurately represent the primary role of transfer payments. For example, incentives for corporate mergers relate to business strategy rather than social support. Similarly, stimulating business investments involves different economic mechanisms that do not directly involve individual financial support. Maintaining government contractor relationships is focused on government procurement and does not reflect the social welfare aspect of transfer payments.