disposable income

Examples of disposable income in the following topics:

• Disposable Income

  • Income left after paying taxes is referred to as disposable income.
  • Disposable income is thus total personal income minus personal current taxes .
  • Discretionary income is disposable income minus all payments that are necessary to meet current bills.
  • Disposable income is often incorrectly used to denote discretionary income.
  • Disposable income can be spent on essential or nonessential items.

• Consumption outcomes

  • Then, disposable income increases to 200 but only consumes 180.
  • Then, disposable income increases to 200 but only consumes 180.
  • Y stands for disposable income.
  • As savings increases as disposable income increases, the saving line slopes upward.
  • As savings (S) increases as disposable income (Yd) increases.

• How Fiscal Policy Can Impact GDP

  • The builders then will have more disposable income, and consumption may rise, so that aggregate demand will also rise.
  • If the builder receives $1 million and pays out $800,000 to sub contractors, he has a net income of $200,000 and a corresponding increase in disposable income (the amount remaining after taxes).
  • This process proceeds down the line through subcontractors and their employees, each experiencing an increase in disposable income to the degree the new work they perform does not displace other work they are already performing.
  • Each participant who experiences an increase in disposable income then spends some portion of it on final (consumer) goods, according to his or her marginal propensity to consume, which causes the cycle to repeat an arbitrary number of times, limited only by the spare capacity available.
  • The builders will have more disposable income, increasing their consumption and the aggregate demand.

• Fiscal Levers: Spending and Taxation

  • The decrease in taxes has a similar effect on income and consumption as an increase in government spending.
  • When the government cuts taxes instead, there is an increase in disposable income.
  • Part of the disposable income will be spent, but part of it will be saved.
  • where MPC is the marginal propensity to consume (the change in consumption divided by the change in disposable income), and MPS is the marginal propensity to save (the change in savings divided by the change in disposable income).
  • The tax multiplier is smaller than the government expenditure multiplier because some of the increase in disposable income that results from lower taxes is not just consumed, but saved.

• The consumption function

  • Such consumption is considered autonomous of income only when expenditure on these consumables does not vary with changes in income.
  • Such consumption is considered induced by income when expenditure on these consumables varies as income changes.
  • C1 is the marginal propensity to consume (MPC) and Yd represents the disposable income.
  • That would mean that people consume 60% of their disposable income and save 40%.
  • Disposable income is calculated by subtracting taxes and transfer payment, but after adding back government subsidies, such as welfare payments.

• Personal Income

  • In the United States the most widely cited personal income statistics are the Bureau of Economic Analysis's (BEA) personal income and the Census Bureau's per capita money income.
  • BEA publishes disposable personal income, which measures the income available to households after paying federal and state and local government income taxes.
  • Personal income and disposable personal income are provided both as aggregate and as per capita statistics.
  • BEA produces monthly estimates of personal income for the nation, quarterly estimates of state personal income, and annual estimates of local-area personal income .
  • The Census Bureau also produces alternative estimates of income and poverty based on broadened definitions of income that include many of these income components that are not included in money income.

• Fiscal Policy and the Multiplier

  • The initial rise in consumer spending will lead to a series of subsequent rounds in which the real GDP, disposable income, and consumer spending rise further.

• The Multiplier Effect

  • When the fiscal multiplier exceeds one, the resulting impact on the national income is called the multiplier effect.
  • When the fiscal multiplier exceeds one, the resulting impact on the national income is called the multiplier effect.
  • The multiplier is influenced by an incremental amount of spending that leads to higher consumption spending, increased income, and then even more consumption.
  • As a result, the overall national income is greater than the initial incremental amount of spending.
  • The goal is that the net increase in disposable income will be greater than the original investment.

• Role in Matching Savings and Investment Spending

  • Savings are income after-consumption and investment is what is facilitated by saving.
  • A popular national income accounting framework for discussing the economy is the GDP expenditure equation:
  • Savings is defined as income that is not consumed.
  • More disposable income after fixed expenditures (such as mortgage, heating bill, basic goods purchases) have been made increases saving.
  • The greater the MPS, the more saving households will do as a proportion of each additional increment of income.

• Shifts in the Money Demand Curve

  • Decrease in consumer income if the good is a normal good
  • Increase in consumer income if the good is an inferior good