Question

How does it have an impact on governments choosing to use deflationary exposing transfer payments, depending on how they choose to spend?

Answer 1

Transfer Payments and the way it is spend
Transfer payments are payments made by government not in exchange of any goods or services. This includes social security expenditure, health care expenditure, welfare, subsidies and insurance schemes for the unemployed etc. Transfer payments are one among the best options to attain public welfare. The method opt the best when the economy is in deflationary pressure. The allocation of funds through transfer payments has direct effects in the economy.
Even though there are many ways of expenditure is included in transfer payments, some are most effective at the time of deflation. The ability of government to channelize funds properly through transfer payments could be effective in tackling deflation. An inefficient allocation may not be successful in tackling the deflationary pressure. Providing direct subsidies and funds are more effective to tackle deflation. The demand and supply in the economy could only be regained by increasing the ability of the people to purchase. Government allocating direct transfers to the people helps stimulating demand which was fell down due to recession. Increasing demand from the base and low income people could only encourage the economy to produce and supply further. Transfer payments like expenditure on health care, insurance for the unemployed etc. cannot encourage the demand in the economy since it does not have a short term or direct effect in the economy. Direct allocation of funds to the people through transfer payments could encourage stimulating the economy to demand more by increased ability to purchase.