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Chapter 19: Problem 2

What are the differences between national income, personal income, and disposable personal income?

Short Answer

Expert verified
National income is the total income earned by a nation's people and businesses. Personal income is the total income received by individuals in a country, including through investments and government transfers. Disposable personal income is personal income minus income taxes, representing the income available to individuals for spending and saving. Each measure highlights a different aspect of income in a country.

Step by step solution

01

Understanding National Income

National income is the total amount of money earned by a nation's people and businesses. It includes income from labor and capital within the country. It reflects the overall economic performance of a country.
02

Understanding Personal Income

Personal income, on the other hand, is the total income received by citizens of a country. It includes income from labor, investments, and government transfers. It can be understood as the income that is received, but not necessarily earned, by individuals.
03

Understanding Disposable Personal Income

Disposable personal income (DPI) represents the income available to people for spending and saving. It is calculated by subtracting income taxes from personal income. DPI is important because it indicates the amount of money people have to spend or save.
04

Highlight differences

Each of these terms measures a different aspect of income. National income refers to the total income of a nation, personal income refers to the income received by individuals, and disposable personal income is what remains after taxes. In other words, national income is a measure of a nation's economic performance, personal income is a measure of the income received by individuals, and DPI is a measure of the income available for spending and saving.

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Most popular questions from this chapter

As of 2017,19 countries in Europe had adopted the euro as their common currency. These countries are called the euro zone. According to an article in the Economist, "The euro zone's GDP grew at an annualized rate of around \(2 \%\) in the first quarter." Is it likely that the article is referring to the growth in nominal GDP or the growth in real GDP? Briefly explain.

Which of the following are likely to increase measured GDP, and which are likely to reduce it? a. The fraction of women working outside the home increases. b. There is a sharp increase in the crime rate. c. Higher tax rates cause some people to ask to be paid in cash so they can hide more of the income they earn.

What is gross domestic income? Which component of gross domestic income is the largest?

Is the value of a house built in 2008 and resold in 2019 included in the GDP of 2019 ? Briefly explain. Would the services of the real estate agent who helped sell (or buy) the house in 2019 be counted in GDP for \(2019 ?\) Briefly explain.

In the circular flow of income, why must the value of total production in an economy equal the value of total income?
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