After making some further adjustments in national income(NNPfc) such as deducting government’s share, undistributed profits of the business enterprises, corporate taxes, etc., and adding interest on governments debt, transfer payments (pensions, etc.), we arrive at Personal Income or income that accrues to or is earned by the factors of production. But all income earned by a person may not be available for spending. A part of income is taken away by the government in the form of direct taxes (such as income tax or compulsory payments). Deducting these compulsory payment from the personal incomes, we arrive at personal Disposable Income which is the income that person is free to spend or dispose off. This concept of Personal Disposable Income forms the basis of consumption functions and plays crucial role in the process of national income determination.
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