Future Business Leaders of America (FBLA) Hospitality Management Practice Test

What is "disposable income"?

1. The income remaining after taxes have been deducted

2. The total income before taxes

3. The income allocated for savings

4. The amount spent on essential goods and services

The correct answer is: The income remaining after taxes have been deducted

Disposable income refers to the amount of money that individuals or households have available for spending and saving after income taxes have been deducted. This definition is important because it distinguishes between gross income, which is the total income earned before any deductions such as taxes, and disposable income, which provides a clearer picture of the financial resources available for discretionary spending. Understanding disposable income is crucial in fields such as hospitality management, as it influences consumer behavior and spending patterns. For instance, higher disposable income often leads to increased spending on services like dining out, travel, and entertainment, which are essential components of the hospitality industry. The other options do not accurately capture the definition of disposable income. The total income before taxes refers to gross income, while the income allocated for savings is a subset of disposable income rather than a definition of it. Lastly, the amount spent on essential goods and services does not characterize disposable income, as it could imply necessary expenditures rather than the total available after taxes.