Question

Explain the concept of personal income.

Answer 1

Personal Income is an important concept in national income accounting. It refers to the total income actually received by all individuals and households in a country from all sources, during a given period, before payment of direct taxes like income tax.

In simple words, Personal Income includes all incomes,earned and unearned,that are actually received by individuals for their use and consumption. It is a subset of Private Income, but only includes those parts that are personally received, not what accrues to private companies or remains with them.

Personal income differs from other national income concepts in that it focuses only on the actual receipts of individuals. It includes all types of income, such as:

• Wages and salaries

• Rents

• Interest

• Dividends

• Transfer incomes (like pensions, gifts, scholarships)

• Profits distributed by firms (but not the part retained by firms)

Personal Income = Private Income − Undistributed Profits − Corporate Tax + Transfer Payments