Question

what effect would a tax increase have on income?
○ it would reduce gross income.
○ it would not affect net income.
○ it would increase net income.
○ it would not affect gross income.

Explanation:

To solve this, we analyze each option:

• Gross income is earnings before taxes. A tax increase doesn't change the amount earned before taxes, so it doesn't affect gross income.
• Net income is gross income minus taxes. A tax increase would decrease net income (so options about no effect on net or increasing net are wrong).
• A tax increase doesn't reduce gross income (gross is pre - tax). So the correct reasoning leads to the option about no effect on gross income.

Answer:

D. It would not affect gross income. (assuming the options are labeled A - D as per the order: 1st option A, 2nd B, 3rd C, 4th D)