Personal income equals disposable income plus a. personal savings. b. transfer payments. c. dividend payments. d. personal taxes.
The Correct Answer and Explanation is:
The correct answer is d. personal taxes.
Explanation:
Personal income is the total income received by individuals from all sources before taxes are deducted. It includes wages, salaries, rental income, dividends, interest, and any other form of income. However, when we calculate disposable income, we subtract personal taxes from personal income. Disposable income is the portion of income that is available for spending and saving after taxes have been deducted.
Here’s how the relationship works:
- Personal Income: This is the total income an individual earns. It includes all sources of income such as wages, salaries, interest, dividends, and government transfers.
- Personal Taxes: These are the taxes paid to the government, which include income taxes, social security taxes, and others that reduce an individual’s take-home pay.
- Disposable Income: This is what remains after personal taxes are deducted from personal income. It is the income that individuals can spend on goods and services or save for the future.
Mathematically:Personal Income=Disposable Income+Personal Taxes\text{Personal Income} = \text{Disposable Income} + \text{Personal Taxes}Personal Income=Disposable Income+Personal Taxes
This formula shows that disposable income is derived from personal income after accounting for taxes. Personal savings, transfer payments, and dividend payments are other factors that influence an individual’s financial position but are not directly involved in this specific equation. For example, savings are the part of disposable income not spent, and transfer payments (like government benefits) are included in personal income but not part of disposable income.
