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  • Disposable Income

Formula for Disposable Income

Disposable income is calculated by taking a household's or individual's market income, subtracting taxes paid, and adding any government transfers received. The relationship can be expressed with the formula: Disposable Income = Market Income − Taxes + Government Transfers.

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  • Market Income vs. Disposable Income for Measuring Living Standards

  • Formula for Disposable Income

Learn After
  • An individual earns a market income of 60,000inayear.Theypay60,000 in a year. They pay 12,000 in taxes and receive $5,000 in government transfers. What is their disposable income for the year?

  • Calculating a Household's Financial Position

  • A household's market income remains constant from one year to the next, yet their disposable income increases. Which of the following scenarios would best explain this change?

  • Policy Effects on Household Spending Power

  • Comparing National Economic Well-being

  • If a government simultaneously increases both the taxes a household pays and the government transfers it receives by the exact same dollar amount, the household's disposable income will remain unchanged, assuming its market income does not change.

  • Calculating Market Income from Disposable Income

  • Match each component to its function within the calculation that determines the amount of money a household has available for spending and saving.

  • Two households, Household A and Household B, earn the same market income. Despite this, Household A has a higher disposable income than Household B. Which statement must be true to explain this situation?

  • To calculate the amount of money a household has available for spending and saving, one must subtract taxes from market income and add any received ________.