Question

Disposable income \[Y_D\] in the consumption function is defined as:

Options

• \[Y_D=Y+T-\overline{TR}\]

• \[Y_D=Y-T+\overline{TR}\]

• \[Y_D=Y+cT+\overline{TR}\]

• \[Y_D=Y-T-\overline{TR}\]

Answer 1

Disposable income is what remains of national income \[Y\] after paying taxes \[T\] and after receiving transfers \[\overline{TR}\]: \[Y_D=Y-T+\overline{TR}\]. This disposable income is the argument of the consumption function.