Measuring Real Disposable Income

Steps:

• Include all income sources: employment, pensions, and benefits.
• Subtract deductions: income tax and welfare contributions to get net income.
• Adjust for inflation: converts nominal values to real terms, reflecting purchasing power.
• Combine steps: yields changes in real disposable income after taxes and inflation.

Why C is correct:

• Disposable income is defined as total income minus taxes and contributions, with "real" adjustment for inflation to show true economic changes.

Why the others are wrong:

• A: Ignores inflation adjustment, so it's not "real."
• B: "Nominal" means no inflation adjustment; also, "earnings" typically excludes pensions/benefits.
• D: "Earnings" refers to pre-tax income from work, excluding pensions/benefits and post-tax adjustments.

Final answer: C