If the economy were approaching full employment and experiencing demand-pull inflationary pressure, you would expect personal income taxes and transfer payments such as unemployment compensation to automatically:

Question

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In a situation of demand-pull inflation and approaching full employment, personal income taxes would automatically increase due to higher incomes moving people into higher tax brackets (progressive tax system), and transfer payments such as unemployment compensation would automatically decrease because fewer people would be unemployed and eligible for such benefits. This is an example of the automatic stabilizers in the economy working to moderate the business cycle.

If the Economy Were Approaching Full Employment and Experiencing Demand-Pull