Economics · Ch 7 — National Income
Other Related Aggregates: Personal Income, Personal Disposable Income and Per-Capita Income
Other Related Aggregates: Personal Income, Personal Disposable Income and Per-Capita Income
National Income (NI) is income earned by factors of production. But not all of it reaches households as spendable cash, and households also receive some income they did not earn by contributing a factor of production.
Personal Income (PI) is the total income actually received by households from all sources, whether earned or unearned, before payment of personal taxes:
PI=NI−Undistributed Profits−Corporate Tax−Net Interest Payments made by Households (if applicable)+Transfer Payments
The two big deductions from NI are amounts earned by companies but not paid out to households: undistributed (retained) profits kept back by companies for reinvestment, and corporate (profit) tax paid by companies to the government. The addition is transfer payments — old-age pensions, scholarships, unemployment allowances and interest on the public (national) debt — money households receive without currently supplying any factor service in return.
Personal Disposable Income (PDI) is what is left with the household after paying direct personal taxes (income tax) and other compulsory non-tax payments (fines, fees) — the amount actually free to be spent or saved:
PDI=PI−Personal (Direct) Taxes−Miscellaneous Non-Tax Payments
PDI=Consumption Expenditure+Savings …
Payments received by households for which no corresponding productive service is rendered in the current year (e.g. old-age pensions, scholarships, interest on public debt); added while m …
Income left with a household after paying direct personal taxes and miscellaneous non-tax payments; the true measure of a household's spendable/save-able income, split entire …