Question

Disposable income equals aggregate income

A) minus taxes.
B) minus saving.
C) minus saving and minus net taxes,
D) plus saving minus net taxes.
E) plus taxes.

Answer 1

Disposable income equals personal income minus taxes and plus transfers, minus saving and minus net taxes.

Step-by-step explanation:

Disposable income is what remains after we subtract from personal income the taxes paid by households to the government and add to personal income the transfers (such as welfare payments) received by households from the government.

So, the correct answer is option C) minus saving and minus net taxes.

For example, if a household has a personal income of $10,000, pays $2,000 in taxes, receives $1,000 in transfers, and saves $500, its disposable income would be calculated as follows:

Disposable income = Personal income - Taxes + Transfers - Saving
= $10,000 - $2,000 + $1,000 - $500
= $8,500