Differences Between Personal Income and Disposable Personal Income
Personal Income (PI) is the total amount of money a person or family earns from all sources of income, including wages, salaries, rental income, dividends, interest, and government transfers. It is a key economic indicator measuring the total income earned by individuals or households over a given period. Economists and policymakers use the personal income to analyze consumer behavior, income inequality, and the state of the economy.
Disposable Personal Income (DPI) is the amount of money that is left after taxes and other deductions have been deducted from an individual’s or household’s income. It provides a more accurate depiction of the actual income available to individuals and households for consumption and savings. DPI assists in comprehending the spending and saving patterns of individuals or households, which can substantially affect economic growth and employment.
Personal Income vs Disposable Personal Income
| Basis | Personal Income | Disposable Personal Income |
|---|---|---|
| Definition | Total income earned by an individual/household | Income available for consumption and savings after tax and other deductions |
| Calculation Method | Earned, unearned, and government transfers | Personal income minus taxes and other deductions |
| Importance | Measures the overall income earned by individuals/households | Measures the actual income that individuals/households have at their disposal |
| Economic Impact | Provides insight into income inequality and consumer behavior | Provides insight into spending and saving patterns that can impact economic growth and employment |
| Divisions | None | Divided into Personal Consumption Expenditures (PCE) and Personal Savings (PS) |
| Purpose | Used by economists and policymakers to analyze the overall health of the economy | Used to understand individuals/households’ purchasing power and ability to contribute to the economy |
| Example | A person earns $50,000 per year | After taxes and deductions, the person has $40,000 to spend and save. |
Personal Income and Disposable Personal Income are two important macroeconomic indicators that measure the total income earned by individuals or households and the actual income available for consumption or savings, respectively. Unlike Personal Income, which provides an overview of the income earned by individuals or households, Disposable Personal Income accounts for taxes and other deductions to depict the actual income available to individuals or households accurately.
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