Multiple Choice
Which of the following best summarizes Adam Smith's perspective on positive and normative analysis?
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0. Basic Principles of Economics
Positive and Normative Analysis
Multiple Choice
Which of the following is a normative economic statement?
A
The unemployment rate is currently 5%.
B
A decrease in interest rates leads to higher investment.
C
Exports increased by 3% last year.
D
The government should increase the minimum wage to reduce poverty.
Verified step by step guidance1
Understand the difference between positive and normative economic statements. Positive statements describe facts or cause-and-effect relationships and can be tested or validated. Normative statements express opinions or value judgments about what ought to be and cannot be tested purely by facts.
Review each statement to determine if it is positive or normative: For example, 'The unemployment rate is currently 5%' is a positive statement because it reports a measurable fact.
Check if the statement involves a cause-and-effect relationship that can be tested, such as 'A decrease in interest rates leads to higher investment.' This is also a positive statement because it can be empirically verified.
Identify statements that express opinions or recommendations, such as 'The government should increase the minimum wage to reduce poverty.' This is a normative statement because it suggests what ought to be done based on value judgments.
Conclude that the normative economic statement is the one that includes a recommendation or opinion about policy or what should happen, rather than a factual description.
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