INCOME By working and being productive, households earn an income and businesses make a profit. The total amount that households and businesses receive before taxes and other expenses are deducted is called aggregate income. The amount of money that is left after taxes and other expenses have been deducted from one’s pay is called disposable income. Discretionary income is what consumers (households) have to pay for the goods and services they desire. We shall focus only on households and how they consume their income. Households spend most of their discretionary income on consumption. Some consumers spend even more than their current discretionary income on consumption by borrowing. Consumption consists of almost everything that consumers purchase, from durable to nondurable goods as well as all types of services. The only exception to this rule is the purchase of a new home: It is counted as an investment because homes tend to appreciate in value. [download]
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