In an economy, National Income is 500\text{ billion}, corporate profit tax is 40\text{ bil… — JAMB UTME

In an economy, National Income is $500\text{ billion}$ , corporate profit tax is $40\text{ billion}$ , undistributed corporate profits are $30\text{ billion}$ , social security contributions are $20\text{ billion}$ , transfer payments are $50\text{ billion}$ , and personal direct taxes are $35\text{ billion}$ . What is the Disposable Personal Income of this economy?

₦425 billionAnswer
B
₦460 billion
C
₦325 billion
D
₦495 billion

Answer

₦425 billion

Disposable Personal Income is obtained by first calculating Personal Income (National Income minus corporate profit tax, undistributed corporate profits, and social security contributions, plus transfer payments) and then subtracting personal direct taxes. Here,

\text{Personal Income} = 500 - 40 - 30 - 20 + 50 = 460\text{ billion}

, and

\text{Disposable Personal Income} = 460 - 35 = 425\text{ billion}

Step-by-Step Solution

Calculate Personal Income (PI) from National Income (NI)

\text{PI} = 500 - 40 - 30 - 20 + 50 = 460\text{ billion}

Corporate profit taxes, undistributed corporate profits, and social security contributions are earned income not received by individuals, whereas transfer payments are income received without corresponding current production.

Calculate Disposable Personal Income (DPI) from Personal Income (PI)

\text{DPI} = 460 - 35 = 425\text{ billion}

Disposable Personal Income is the net income available to households after deducting personal direct taxes.

Key Concept

Personal Income vs Disposable Income Derivation

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