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Explain the difference between personal income and disposable income. How can personal income increase by a lower amount than disposable income?
Personal income is income received by individuals from all possible sources. This includes wages, and income from dividends paid on investments. The largest component of total income is wages and salaries, a figure that can be estimated using payrolls and earnings data from the employment report. Beyond that, there are many other categories of income, including rental income, government subsidy payments, interest income, and dividend income. Personal income is a decent indicator of future consumer demand, but it is not perfect. Recessions usually occur when consumers stop spending, which then drives down income growth. Looking solely at income growth, one may therefore miss the turning point when consumers stop spending. Like real GDP per capita, real disposable income is a measure of economic well-being. It specifically focuses on the amount of income available for private consumption and spending. Real disposable income takes into consideration the reality that "take-home pay" is heavily influenced by not only gross income, but also by factors such as government transfer levels, taxation levels, and inflation. Therefore, personal income can increase at a lower rate than disposable income when tax cuts are given and inflation threatens those that have retained savings. For example, laborers in the 70's had a higher personal income than they did in the 60's. However, with double-digit inflation and high...
This is counter-intuitive, as one would reason that consumer spending would jump as people were leaving the market, as we saw real estate expenditures increase dramatically as stock market prices fell (this was also due to lowered interest rates) or bond spreads tighten as people switch from equity to debt in a stagnating market with high interest rates. The wealth effect, however, has more to do with the psychology of consumers, who self-identify as being wealthier and expect to be able to sell their portfolios for a higher value. Such people might also see themselves as having a smaller monthly obligation to contribute to their retirement plans, freeing up cash to throw at consumer cyclicals and consumer durables. Increased demand causes spending expectations to rise, which drive stock prices up even more as companies are expected to grow to meet demand. This is what is known as a "virtuous circle." One would think such a process would be curtailed because less credit would be available to companies wishing to expand, but this problem is solved by increased foreign direct investment. When the aggregate value of personal property increases, so does consumer demand. Keynesian economists blame over-consumption in such economies for higher interest rates, and usually suggest an interest rate hike to cool down spending.…
Aggregate Demand/Supply and Full Employment Employment level in any country is dependent upon important economic factors or elements including production, demand, supply, consumption, inflation etc. Employment can never be increased or decreased without it producing some effect on these economic factors. In their words, changes in these factors are what lead to increase or decrease in employment level. For example in any country we cannot expect to increase employment level without
Fixed Exchange Rates The aggregate demand -- aggregate supply accounting identity is C + I + G + E -- M = GDP. Under a fixed exchange rate system, the following would occur under expansionary monetary policy. The money supply would increase. This encourages spending, spurring demand from consumers and businesses (C and I). In order to balance this, either government spending would need to decline, or net exports would need to decrease.
Introduction to Economics and Global Capitalism The idea that minimum wage, even though it has risen, has not kept pace with real wages, according to the U.S. Senate Committee on Health, Education, Labor and Pensions (2013). The issue of course is one of inflation. So if Sen. Harkin wants to grow the middle class, which he calls the backbone of the economy, he should simply get on the Fed to stop
Supply and Demand Simulation There are several factors that may affect the demand and supply curves and shift them to the right or to the left accordingly, with the respective consequences. If we look at the demand curve first, perhaps the most important factor that causes a shift is the customers' preference or taste. For example, we may consider wheat as a product. The customers decide that wheat is not as healthy
Supply Chain Management Hypothesis defined Concepts of SCM and the evolution to its present day form Critical factors that affect SCM Trust Information sharing and Knowledge management Culture and Belief -- impact on SCM Global environment and Supply Chain management "Social" and "soft" parameter required for SCM Uncertainties This chapter aims to give an outline and scope of the study that will be undertaken in this work. The study lays out the issues faced by manufacturing organizations when it comes
CPM is critically important from a supply chain management standpoint in optimizing inventory positions by location throughout a distribution channel as well (Omar, 2009). All of these factors contribute to the automating of CPM and PERT through organizations who are heavily reliant on their supply chains to gain a competitive advantage. The optimization of inventory workflows using CPM and PERT contribute to that competitive advantage over time. PERT and