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What are the differences between national income, personal income, and disposable personal income?
The chapter also describes other measures of total production and total income. National
income accounting refers to the methods the U.S. Bureau of Economic Analysis (BEA) uses to
track total production and total income in the economy. In addition to computing GDP, the BEA
computes the following four measures of production and income: gross national product, national
income, personal income, and disposable personal income, as outlined below:
Gross National Product (GNP) is the value of final goods and services produced by
residents of the United States, even if the production takes place outside the United
States. GNP includes foreign production by U.S. firms but excludes U.S. production by
foreign firms. For the United States, GNP is almost the same as GDP.
In producing goods and services, some machinery, buildings, and equipment wear out and
have to be replaced. Depreciation is referred to as the consumption of fixed capital. If we
subtract this value from GDP, we are left with national income.
Personal income is income received by households. To calculate personal income, we
subtract the earnings that corporations retain rather than pay to shareholders in the form
of dividends and we add in the payments received by households from the government in
the form of transfer payments or interest on government bonds.
Disposable personal income is equal to personal income minus personal tax payments,
such as the federal personal income tax. Disposable personal income is the best measure
of the income households have available to spend.
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