Types of income Flashcards
What is the definition of income?
is rewards to those supplying productive
resources. In turn, income gives individuals
command over the purchase of goods and services
to satisfy needs and wants. Income may take various
forms, including:
* wages and salaries paid to workers
* rent paid to landlords
* interest paid to owners of capital
* profits paid to risk takers
* transfer payments, income support or welfare
from the government to the needy.
Earned income (e.g. wages and salaries) is from
working, while unearned income (such as interest
and dividends) is from investments.
What is the definition of wealth?
is the stock of assets (such as property, capital
and antiques) owned by an individual. Substantial
income can be earned by owners of wealth. In
Australia, wealth is unevenly distributed and is
often inherited from one generation to the next.
What is earned income?
Comes from households selling their labour or supplying intellectual talents and physical
power to businesses
What is unearned income?
Includes rent and interest. It is received for allowing others to use your property or
savings, or sometimes it represents a reward for risk.
What are fringe benefits?
A fringe benefit is a special nonmonetary reward given by an employer to selected
employees in lieu of income (e.g. a free house, company car).
What is gross income?
The sum of all income received by an individual from various sources such as wages,
salaries, rent, interest, dividends and government welfare benefits, but before the
payment of taxes
What is disposable income?
Equals the gross income of a person from all sources including government welfare, after
the payment of personal income tax
What is social wage income?
The disposable income received by an individual, including private income and
government welfare, after the payment of income tax and following the addition of the
value of government services like health care provided free of charge or at a lower,
subsidised price. Clearly, the level of a person’s social wage income gives a very clear
picture of an individual’s actual purchasing power or access to basic goods and services,
and hence their material living standards.
What is nominal income?
The number of dollars of income received by an individual measured over a period of
time — perhaps an hour, a week, a month or a year (e.g. $750 per week). It does not take
into account the actual quantity of goods and services that these dollars can purchase
(purchasing power), since this depends on the prices that are paid or the general inflation
rate that is often measured by the consumer price index (CPI). This is where it is handy to
use another measure called real income.
What is real income?
Equal to a person’s nominal level of income measured in so many dollars, after taking
into account the inflation or deflation rate or change in general level of consumer prices.
For example, if the average level of household’s nominal incomes went up by, say, 4 per
cent during 2023–24 and average consumer prices during the year went up by 3 per cent,
then real incomes or purchasing power would have risen by 1 per cent (i.e. 4 per cent
rise in nominal income minus 3 per cent rise in inflation equals a 1 per cent rise in real
incomes). Normally, the rise in real income would lead to better average material living
standards.
