Trade-off in macroeconomic policy aims

Steps:

• Identify policy aims in each option as a pair where the first aim's success might conflict with the second.
• Recall key economic relationships, like the Phillips curve, that show potential trade-offs.
• Evaluate each pair for inherent conflicts based on standard economic theory.
• Select the pair with the strongest documented conflict.

Why A is correct:

• The Phillips curve demonstrates an inverse relationship between unemployment (opposite of full employment) and inflation, so achieving full employment often leads to higher inflation, undermining price stability.

Why the others are wrong:

• B: High growth can support full employment without direct conflict, as both align with expansionary policies.
• C: Price stability aids a stable balance of payments by reducing import pressures, creating complementarity.
• D: Stable balance of payments can be achieved through trade policies that do not inherently worsen income distribution.

Final answer: A