Discretionary Income

U.S. History

(noun)

Money remaining after all bills are paid off. It is income after subtracting taxes and normal expenses (such as rent or mortgage, utilities, insurance, medical, transportation, property maintenance, child support, inflation, food and sundries, etc. ) to maintain a certain standard of living.

Related Terms

  • conspicuous consumption
Economics

(noun)

Disposable income (after-tax income) minus all payments that are necessary to meet current bills.

Related Terms

  • disposable income

Examples of Discretionary Income in the following topics:

  • Debt Utilization Ratios

    • DSCR = (Annual Net Income + Amortization/Depreciation + Interest Expense + other non-cash and discretionary items (such as non-contractual management bonuses)) / (Principal Repayment + Interest payments + Lease payments)
  • Disposable Income

    • Income left after paying taxes is referred to as disposable income.
    • Discretionary income is disposable income minus all payments that are necessary to meet current bills.
    • Discretionary income = Gross income - taxes - all compelled payments (bills)
    • Disposable income is often incorrectly used to denote discretionary income.
  • Income Security Policy and Policy Making

    • Income security policy is designed to provide a population with income at times when they are unable to care for themselves.
    • Income Security Policy is usually applied through various programs designed to provide a population with income at times when they are unable to care for themselves.
    • Income maintenance is based in a combination of five main types of program
    • Discretionary benefits.
  • Arguments For and Against Discretionary Monetary Policy

    • Discretionary policies refer to subjective actions taken in response to changes in the economy.
    • For much of the 20th century, governments adopted discretionary policies to correct the business cycle.
    • A discretionary policy is supported because it allows policymakers to respond quickly to events.
    • This can create compounding issues related to the discretionary policy enacted.
    • A compromise between strict discretionary and strict rule-based policy is to grant discretionary power to an independent body.
  • Automatic Stabilizers Versus Discretionary Policy

    • Automatic stabilizers and discretionary policy differ in terms of timing of implementation and what each approach sets out to achieve.
    • In practice, most policy changes are discretionary in nature.
    • With discretionary policy there is a significant time lag.
    • Discretionary policies can target other, specific areas of the economy.
    • Discretionary policies can address failings of the economy that are not strictly tied to aggregate demand.
  • Difficulty in Getting the Timing Right

    • Discretionary fiscal policy relies on getting the timing right, but this can be difficult to determine at the time decisions must be made.
    • A nation can respond to economic fluctuations through automatic stabilizers or through discretionary policy.
    • With discretionary fiscal policy, timing plays a very significant role.
    • Discretionary policy often requires that a set of laws must be passed through a legislature.
    • Once the discretionary program is in place, the next step is to measure its effectiveness.
  • The Goals of Economic Policy

    • For much of the 20th century, governments adopted discretionary policies such as demand management that were designed to correct the business cycle.
    • A discretionary policy is supported because it allows policymakers to respond quickly to events.
    • However, discretionary policy can be subject to dynamic inconsistency: a government may say it intends to raise interest rates indefinitely to bring inflation under control, but then relax its stance later.
    • A compromise between strict discretionary and strict rule-based policy is to grant discretionary power to an independent body.
    • Another type of non-discretionary policy is a set of policies which are imposed by an international body.
  • Closing the Cycle

    • Closing the revenue accounts—transferring the balances in the revenue accounts to a clearing account called Income Summary.
    • Closing the Income Summary account—transferring the balance of the Income Summary account to the Retained Earnings account (also known as the capital account).
    • After transferring all revenue and expense account balances to Income Summary, the balance in the Income Summary account represents the net income or net loss for the period.
    • Closing or transferring the balance in the Income Summary account to the Retained Earnings account results in a zero balance in the Income Summary.
    • It is not closed to the Income Summary because dividends have no effect on income or loss for the period.
  • Fringe Benefits

    • Fringe benefits are various indirect benefits, often of a more discretionary nature than standard benefits.
    • The term perks (also perqs) is often used colloquially to refer to those benefits of a more discretionary nature.
  • Income Statement Formats

    • Income statements are commonly prepared in two formats: multiple-step and single-step.
    • Income statements are commonly prepared in two formats: multiple-step and single-step.
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