Disposable income, Managerial Economics

Disposable Income

This is the income which households actually have available to spend or to save.  To calculate disposal income, which is indicated by Ya, the statistician must make several adjustments to GNP.

First, all those elements of the value of output that are not paid out to households must be deducted: business savings represent receipts by firms from the sale of output that are withheld by firms for their own uses, and corporation taxes are receipts by firms from the sale of output that are paid over to the government.  Secondly, personal income taxes must be deducted from the income paid to households in order to obtain the amount households actually have available to spend or save.  Finally, it is necessary to add government transfer payments to households.  Although these are not themselves a part of GNP, they are made available to households to spend and save, and are thus a part of disposable Income.  Thus disposal income is:

GNP minus any part of it that is not actually paid over to households, minus the personal income taxes paid by households, plus transfer payments received by households.

Posted Date: 11/28/2012 6:42:43 AM | Location : United States

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