Disposable income or disposable personal income is an economic term for the money that is available for household consumption, savings, and spending after accounting for income tax.
It is an important indicator that is used by economists in determining the demand in an economy. Also, it is used to estimate the overall state of the country’s economy.
The mathematical representation of disposable income formula is as follows:
Disposable income = Personal income – Personal income taxes
Or
DPI = PI – PIT
Spending decisions are taken based on the current income. The effect of disposable income can be seen in the GDP of a nation, as the fluctuations that occur in the disposable income have a big impact on the nation’s GDP growth.
Economic growth can be impacted by the levels of disposable income because during the times of economic crisis, the level of spending by the people will reduce, which will have a direct impact on the economic growth of the country.
This was all about the topic of Disposable Income Formula, which is a very important concept for calculating the income tax-adjusted income of the residents of a country. To read more such interesting concepts, stay tuned to BYJU’S.
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