what happens as disposable income decreases?

Answer 1

I looked it up and...

"Disposable income is the total amount of income an individual makes after taxes."

That means as it decreases, taxes must be increasing faster than increases in total income before taxes.

Solution: We need to lower taxes or completely get rid of the IRS, which would be even better.

Answer 2

As disposable income decreases, consumption decreases, which in turn through a multiplier effect reduces business activity.

That is assuming all things remain equal. But you would have to ask why did disposable income decrease in the first place? If it was because savings increased, taxation rose or general incomes were cut, they would contribute to other effects.

Answer 3

ALL OF YOU ARE WRONG!!! You can't answer this question until you know why disposable income decreased. Did taxes go up or did I get demoted or did all the prices in my bag of goods I usually buy go up (Like gas). All these things have a different outcome.

Answer 4

Y=C+I+G+NX
This means that Y (GDP-gross domestic product) equals
consumption(C) plus investment (I) plus government expenditure (G) plus net exports (NX).

Consumption can be broken into C=a+b(Y-T)
This means consumption equals autonomous spending (a) plus
propensity to consume (b) times disposable income (Y-T).

Consumption is the largest portion of the economy of most developed capitalist nations. Therefore when Y-T decreases C decreases and therefore gross domestic product must decrease.

Therefore, if people have less to spend, they buy less. Stores find they can't get rid of product, they order less. When they order less, the manufacturers produce less. If they produce less, they don't need as many workers. Workers are laid off or their hours are reduced. Unemployment rises. Those workers have a decline in their disposable income. They then spend less.. and so on.

Thats part of the macro story..

Peace

Answer 5

As the disposable income decreases so also disposable activities decrease.

Answer 6

(short version)
Savings decline and typically leads to a rise in inflation.

(explanation)
As my non-tax income goes down, I have to spend savings to maintain my current lifestyle.

As the total savings of an economy decreases there is less money available to loan out to business for buildings, equipment, etc. (ie. banks loan out your Savings dollars as business loans)

This means that businesses must compete for scarce loan dollars. Banks increase the cost to get a loan (they charge a higher interest rate to business).

Other loans are affected too. Some savings dollars are lent out as Home Loans. The cost for these loans increases.

The net efffect of rising interest rates slows down economic activity. Business has fewer customers. So they layoff workers. Less workers in an economy means less Savings, etc.

This is why governments must control inflation. It creates a cycle of decline in the whole economy.

Answer 7

Liberals will want to take it away by increasing your taxes.

Answer 8

You are broke!