LA Business Daily
Where does the decline in disposable income originate from in a recession?
In terms of consumers, why do they have less disposable income? Does their income get cut? Do prices of essentials go up and if so, why? It can't be interest rates because they have been cut here in Australia. Just a simple answer will suffice.
Public Comments
- Disposable income is income earned after taxes and transfers, so if one's disposable income is lower, you would either have to: a) have earned less money b) paid more taxes c) had transfer payments reduced
- In a recession, firms cannot sell as much output, so they will not produce as much. With lower production, they will require less labor. Many people get laid off; many others have their hours, and thus pay, cut. These layoffs and cuts are the source of lowered disposable income. A recession would not lead to an increase in prices, although prices can sometimes rise at the same time.
- usually the unemployment rate goes up so less people earn money which affects others who's hours are cut then generally wage increases slow and everyone spends less. but essentials have risen recently because of more better off people in india and china wanting western food and goods. however this is starting to drop off now.
