Future Business Leaders of America (FBLA) Advertising Practice test

Which type of income is available for discretionary spending?

1. A) disposable income

2. B) gross income

3. C) net income

4. D) investment income

The correct answer is: A) disposable income

Disposable income refers to the amount of money that individuals have available for spending and saving after all mandatory expenses, such as taxes and essential living costs, have been deducted from their gross income. This is the income that can be freely spent on non-essential goods or services, saving, or investments, thus it is key for making decisions about personal finance and budgeting. In contrast to disposable income, gross income encompasses the total earnings before any deductions, including taxes and other mandatory expenses. Net income refers to the amount remaining after taxes and deductions have been taken out of gross income but does not differentiate between necessary and discretionary spending. Investment income, while a source of earnings, does not fit the context of discretionary spending as it is often tied up in financial assets and may not be readily available for personal spending. Therefore, disposable income is the correct type as it directly represents the funds available for discretionary spending, making it essential for understanding personal finance management.