Positive and Normative Economics

Economist often differentiate between positive and normative economics as they prefer to focus on the area of positive economics instead of normative economics.

what is positive economics

positive economics explains "how things are". It explains the way the world works without making a judgement call.

  • Positive economics is like a scientific statement.

For example, if someone were to say "printing money would create hyper inflation" they would be making a positive statement. They are saying what will happen, not whether they think it should or not.

  • Positive economic statements can be wrong - it's all about the wording of the statement.

If I said "the world is flat" that would be a positive statement. Scientifically speaking, this is wrong. But because of the way I said it as if it was fact, it is a positive statement.

What is a normative statement?

Normative economics analyses "how the world ought to work". Essentially, it looks at peoples opinions as to how they think the economy should work.

  • Normative statements are judgement calls or matters of opinion

The statement "I think the fed should decrease interest rates to increase employment" is a judgement call and thus is a normative statement. Because it is my opinion, it is normative.

  • Economist tend to care more about positive economics than normative economics

Economist often take the view that making judgement calls should be left up to politicians. The job of economist is to tell politicians what will happen when they undertake a certain policy.

  • Depending on the way the way the question is worded, it could be either a positive or normative statement.

For example,

"Decreasing interest rates reduces unemployment" is a positive statement. However, "The government should decrease interest rates to reduce unemployment" is a normative statement. Thus, the nature of the statement can depend on how the question is worded.



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