Question

Suppose the amount the federal government collects in personal income taxes increases, while the level of GDP remains the same. What will happen to the values of national income, personal income, and disposable personal income?
National income will ___.
Personal income will ___.
Disposable personal income will ___.

Answer 1

Answer:

National income will remain the same.

Personal income will remain the same.

Disposable personal income will decrease.

Explanation:

We know, National income (NI) = Net national product (NNP) - Indirect business taxes.

NNP = Gross national product (GNP) - Consumption of fixed capital (depreciation)

Personal income (PI) = National income (NI) - Corporate earnings + Government transfer payments .

Disposable personal income = Personal income (PI) - Personal taxes

Disposable personal income is the income or the amount of money that household have for daily spending and savings after paying income tax to the government. If personal income tax increases, it decreases the disposable personal income.

National income and personal income does not get affected by the increase in personal income taxes as given in the formula above.