Final answer:
Disposable income is the amount of personal income left after all taxes have been paid, not accounting for necessary expenses or savings. Thus, the option 5 is the correct answer.
Step-by-step explanation:
Disposable income is all personal income after taxes and does not include the money allocated for necessities like food, clothing, and housing. This income represents the amount available to a household after paying off the taxes but before accounting for any personal savings or expenses for basic needs.
Simply put, when you receive your paycheck, the amount that is left after all federal, state, and local taxes have been deducted is considered your disposable income. It is the portion of your earnings that you can spend as you choose, whether for consumption, saving, or investing for things like retirement. Note that disposable income is different from discretionary income, which is the amount left after both taxes and essential living expenses have been paid.