This is the amount of the total income remaining after tax deductions. It is one of the key indicators of the economic situation of a country (per capita disposable income). Disposable income is also used to determine other economic variables like;
Discretionary income : [Disposable income - all necessities]
Personal saving rate: the percentage of disposable income that is being saved.
Marginal Propensity to consume: percentage of each additional dollar or disposable income that is spent immediately
Marginal Propensity to save: percentage of each additional dollar of disposable income that is saved.
Disposable income affects other aspects of the economy like demand and supply. The higher the disposable income, the more consumers have to spend and thus the higher the demand for goods and services.
Disposable Income = [Personal Income – Personal Income Taxes]