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Which of the following statements are true about discretionary Income? It can be used to pay for different necessities. It can be used to pay for income taxes. It can be used to buy luxury items. It can be saved in a bank.

Which of the following statements are true about discretionary Income? It can be used to pay for different necessities. It can be used to pay for income taxes. It can be used to buy luxury items. It can be saved in a bank. Correct Answer Both 3 and 4

The correct answer is Both 3 and 4.

  • Personal Income refers to all income collectively received by all individuals or households in a country. Personal income includes compensation from a number of sources, including salaries, wages, and bonuses, etc received from employment or self-employment, dividends, or any other source.
  • Disposable income, a part of personal income, also known as disposable personal income (DPI), is the amount of money that is left with the households after income taxes have deducted. That income is available for spending and saving.
  • DPI= Personal Income−Personal Income Taxes.
  • For example, if an individual earns Rs 100000 and the income tax is deducted at a rate of 25 percent then the disposable income will be Rs. 75000.
  • Discretionary income is the amount of income a household or individual has to invest, save, or spend after taxes and necessities are paid. It is what people use to pay for entertainment, luxury items, vacations, and recreation.
  • Discretionary income = Disposable income -  Expenditure on necessities.
  • The expenditure on different necessary items like food, transport, etc is paid from disposable income.
  • In case of job loss or a period of recession, individuals cut their expenses on luxury items and savings because the discretionary income left with them in such cases would be low or negligible.
  • Businesses that sell discretionary products face massive losses in such times.

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