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Answer :
To determine what disposable income equals, let's carefully analyze each option provided:
1. National income minus taxes plus government spending:
- National income is the total income earned by everyone in the economy.
- Taxes refer to mandatory payments made to the government.
- Government spending is the total expenditure by the government on goods and services.
- This option describes the calculation of national budget constraints or a measure of fiscal policy effects, but it doesn't directly define disposable income.
2. National income minus transfer payments:
- Transfer payments are payments made by the government to individuals without any goods or services being received in return, like social security or unemployment benefits.
- Subtracting transfer payments from national income does not reflect the disposable income of individuals.
3. Personal income minus personal taxes:
- Personal income refers to the total income received by individuals and households before taxes.
- Personal taxes are taxes directly charged on individuals, such as income tax.
- Subtracting personal taxes from personal income gives the amount of money individuals have available to spend or save after tax deductions. This is the correct definition of disposable income.
4. Personal income minus transfer payments:
- This option doesn't make sense because transfer payments are often added to personal income rather than subtracted (they are not a deduction).
Based on the analysis, the correct definition of disposable income is personal income minus personal taxes (Option 3).
1. National income minus taxes plus government spending:
- National income is the total income earned by everyone in the economy.
- Taxes refer to mandatory payments made to the government.
- Government spending is the total expenditure by the government on goods and services.
- This option describes the calculation of national budget constraints or a measure of fiscal policy effects, but it doesn't directly define disposable income.
2. National income minus transfer payments:
- Transfer payments are payments made by the government to individuals without any goods or services being received in return, like social security or unemployment benefits.
- Subtracting transfer payments from national income does not reflect the disposable income of individuals.
3. Personal income minus personal taxes:
- Personal income refers to the total income received by individuals and households before taxes.
- Personal taxes are taxes directly charged on individuals, such as income tax.
- Subtracting personal taxes from personal income gives the amount of money individuals have available to spend or save after tax deductions. This is the correct definition of disposable income.
4. Personal income minus transfer payments:
- This option doesn't make sense because transfer payments are often added to personal income rather than subtracted (they are not a deduction).
Based on the analysis, the correct definition of disposable income is personal income minus personal taxes (Option 3).
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