Disposable Income (DI)
Definition: Income after taxes or net income.
Formula: DI = Gross Income - Taxes
Two Choices
With disposable income, households can either :
- Consume (spend $ on goods and services)
- Save (not spend $ on goods and services)
- Consumption
- Household Spending
- The ability to consume is constrained by:
- The amount of disposable income
- The propensity to consume
- Do households consume if DI =0?
- No
APC and APS
- APC + APS = 1
- 1 - APC = APS
- 1 - APS = APC
- APC > 1 .: (period of dissaving)
- -APS .: (period of dissaving)
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