Assume that an economy has automatic stabilizers in place that include a progressive tax structure and a transfer payment system. In a period of high economic growth and high inflation, we would expect

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In a period of high economic growth and high inflation, incomes and profits tend to rise, which leads to higher tax revenues from a progressive tax structure. This means that average tax rates and government revenues would rise. Additionally, transfer payments like unemployment compensation may decrease as more people are employed and have less need for government assistance.

Assume That an Economy Has Automatic Stabilizers in Place That