Trade-off in macroeconomic policy aims

Steps:

• Identify the two policy aims in each option: full employment vs. price stability (A), growth vs. full employment (B), price stability vs. stable balance of payments (C), stable balance of payments vs. even income distribution (D).
• Recall key economic relationships: full employment often pressures wages and demand, risking inflation; other pairs lack inherent conflicts.
• Evaluate conflicts: success in first aim boosts demand or activity, potentially undermining the second if it involves restraint.
• Select option with clearest trade-off based on standard models.

Why A is correct:

• Phillips curve illustrates inverse relationship: achieving full employment (low unemployment) increases inflationary pressures, undermining price stability.

Why the others are wrong:

• B: High growth typically supports full employment without direct conflict, as both aim for expansion.
• C: Price stability aids stable balance of payments by controlling import costs and currency value, reinforcing each other.
• D: Stable balance of payments focuses on trade/external accounts and does not inherently worsen income distribution.

Final answer: A