Question

How are ‘Private Income’ and ‘Personal Disposable Income’ related?

Answer 1

Private income is the total income earned by private individuals and households from all sources, including both earned income (like wages, interest, and rent) and unearned income (like transfer payments from the government and abroad). It includes personal income as well as incomes that do not directly go to households, such as retained earnings of private enterprises.

Personal Disposable Income (PDI), on the other hand, is the portion of Personal Income that remains after paying direct taxes and other obligatory payments. It represents the actual amount available to households for spending and saving.

Stepwise Relationship:

1. Private Income 
2. Minus corporate taxes and retained earnings 
3. Gives Personal Income 
4. Minus direct taxes and non-tax payments 
5. Gives Personal Disposable Income (PDI)

Thus, PDI is a part of private income that is actually available to households for use.