Personal Disposable Income and Savings
Disposable income, also termed as disposable personal income has a crucial role to play in personal finance. The term refers to the amount of money that the household has for expenditure and savings after deductions of the income taxes. Disposable income is an important factor that defines the economic state of the personal finance of an individual. The formula to calculate DPI is:
DPI = Personal Income - Personal Income Taxes Payments
As per the national accounts definitions, personal income, minus personal current taxes equals disposable personal income. This amount includes the amount left out either for expenditure or for savings. Restating the same, a summation of the savings and the expenditures made by an individual is the DPI. This value would keep on changing as per the changes in the salary of the person or tax changes. The marginal propensity to consume (MPC) is a part of the change in the disposable income. For an example, if there is a $100 increase in the disposable income and $65 out of it is consumed, the MPC will be 35%, as obvious.
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