In theoretical perspective as well as in a practical point view a question arises whether these objectives can be met in the same time or is there exist trade-off between these objectives and one has to choose one of them or a combination given the economic conditions they face.
Applying the macroeconomic variables and there relationship and the empirical evidence from most of the market economies suggests that there is trade-off between these variables and the degree of these variables vary over time and it differs from one country to another depending on their structure of their economy and the role of government in economic affairs. In addition, it also depends on the macroeconomic policies and other reforms they undertake and their effectiveness or otherwise. IN the current global economic environment some macroeconomic instability may be positively or negatively affect volatility and macroeconomic performance due to coupling of the global economic system. For example the currently the mortgage crisis in US is affecting many overseas financial markets and also the stock exchanges in a negative sense. However, some countries are coping well but others are affected to greater degree.
In a theoretical perspective, applying neo-classical or Keynesian theory full-employment in a market economy is not possible and there exist a natural rate of unemployment. If the economic growth moves the economy towards full-employment then it mostly will affect the prices than increase output. That is full-employment and inflation in different degrees
has a trade-off in different countries depending on the labor market conditions and how the labor market works in a particular country.
However, economic growth and high level of employment are achievable but the natural level of unemployment differs to one country to another.
As well, at higher level of economic activity every economy may have a level of inflation depending on the market structure in goods and in the labor market and their flexibility in adjusting to price signals. In monetarist point of view, the inflation will also may be higher due to excessive fiscal deficits and the improper funding of the deficit, which may have a substantial crowding out effect and may raise the interest rate and decrease aggregate demand and increase the level of unemployment and may produce a higher rate of inflation.
In any market economy business cycles are inevitable and it is not possible my any macroeconomic policies to eliminate but a prudent combination of monetary and fiscal policy and also microeconomic reform may reduce the instability and volatility of the business cycles in a market based economy. Ina empirical sense the economic statistics points to the fact all market economies on a historical basis in different degrees has gone through boom and bust cycles whatever the policies they have pursued to maintain macroeconomic stability.
In a theoretical basis it is also possible there may be trade-off between higher economic growth and external stability or balance of payment problems and exchange rate issues.
However, this also varies from one country to another and their economic structure and the financial market efficiency. This happens because when economic growth is higher the imports may increase at a faster rate and the prices of imports may be higher than the exports and the export growth may be slower compared to imports and it is financed
excessively by borrowings than domestic savings. In a global economic system it is also due to capital flows and speculation activity. In this sense at least in a theoretical basis it can be argued that there can be trade-off between external stability and economic growth but in varying degrees in different periods and in different countries depending on their economic structure and the efficiency and dynamism of their market and the level of economic development and the financial system of a country and exchange regime.
As discussed above it is certain there can be trade-off between different macroeconomic objectives and all objectives cannot be achieved simultaneously even though it may be possible by adopting effective macroeconomic polices and microeconomic reform and competition in the economic system and have a fair distribution of income in a country
