What Is The Prime Reason That Jenny's Discretionary (2024)

FAQs

What is the primary reason that Jenny's discretionary income? ›

Her cost of living is affected by high inflation in the neighborhood. Discretionary income is the remaining amount after deducting taxes, mandatory contributions, and other necessary costs including mortgage. Taxes and mortgage payments normally have fixed rates which will not change the discretionary income.

Expert-Verified Answer

Her cost of living is affected by high inflation in the neighborhood is the prime reason that Jenny's discretionary income is more volatile than her salary. While her salary remains stable, high inflation can significantly impact the cost of living, causing prices for goods and services to rise.

If Jenny's salary changes, this directly affects her budget constraint and consequently her discretionary income. For example, in the situation depicted where Vivian's wage increases, she faces a new budget constraint that will affect her decision about how many hours to work and thus her disposable income.

Discretionary income is the amount of money you have left after paying for necessary expenses, like taxes, housing and food. You use discretionary income for "extra" things, like entertainment, savings and investments. Depending on the purpose, discretionary income may be calculated in different ways.

Discretionary income is money left over after a person pays their taxes and pays for essential goods and services like housing and food. Nonessential items like vacations and luxury goods are usually paid for with funds from discretionary income. Discretionary income is used by economists to measure economic health.

Not only are Baby Boomers the wealthiest generation, holding 70% of the disposable income in the U.S. and spending over $548 billion a year, but they also they spend more than any other generation, across all categories.

When individuals and households spend more of their discretionary income on goods and services, vacations, luxury items, and other nonessential items, money is funneled towards businesses that provide those goods and services.

Discretionary income is money left over after paying your taxes and other living expenses (rent, mortgage, food, heat, electric, clothing, etc.).

Understand that operating leverage refers to the proportion of fixed costs a company has in its cost structure compared to variable costs and in Jenny's situation, her fixed costs such as rent, utilities, or loan payments can be seen as a form of operating leverage.

Tips for increasing your discretionary income

You can also take advantage of tax-advantaged retirement accounts like 401(k)s and individual retirement arrangements (IRAs), which will reduce your taxes paid. Further, lowering the amount of money you spend on necessities will bolster your discretionary income.

How much is discretionary income? ›

Discretionary income is the amount of income you have after paying for your necessities. It is also a primary factor in monthly student loan payments under a federal income-driven repayment plan.

Discretionary income is the amount left from a person's earnings after paying taxes and paying for personal needs such as food and shelter. This is usually for investing, saving, and/or spending on leisurely or nonessential things such as luxury items and vacations.

It's more useful to consider discretionary income as a percentage of your budget. It can be distilled down to a single number. Discretionary income is used to determine how much you should save and how much you can spend. It's used as a metric by economists and government agencies to determine how the economy is doing.