Disposable Income

Second important concept asks, How many dollars per year do households actually have available to spend? The concept of disposable personal income (usually called disposable income; or DI) answers this question. To get disposable income, you calculate the market and transfer incomes received by households and subtract personal taxes.

Figure 21-4 shows the calculation of DI. We begin with national income in the second bar. We then subtract all direct taxes on households and corporations and further subtract net business saving. (Business. saving is’ depreciation plus profits minus dividends. Net business saving is this total minus depreciation.} Finally. we add back the transfer payments that households receive from governments.

This constitutes DI, shown as the right-hand bar) Figure 21-4. Disposable income is what actually gets into the public’s hands for consumers to dispose of as .they please As we will see in the next chapters, what people divide between (1) consumption spending and (2) personal saving.

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