What is meant by disposable income?

Disposable income refers specifically to the income that individuals have available to spend or save after they have paid their taxes. This is a crucial concept in economics as it directly relates to consumer spending and saving behaviors. When calculating disposable income, one starts with total income and subtracts the taxes owed to arrive at the amount that can be freely utilized by individuals for discretionary purchases or savings.

This measure is valuable because it reflects the actual financial resources that individuals can use to meet their needs and desires, impacting overall economic activity. High levels of disposable income can lead to increased consumer spending, which drives economic growth, whereas lower disposable income might indicate tighter financial conditions for households.

The other options represent different aspects of income and spending but do not capture the essence of what disposable income truly is.