Question

Which of the following statements are positive and which are normative? (a) Annual inflation is belowpercent. (b) Because inflation is low, the government should cut taxes. (c) Income is higher in the UK than in Poland. (d) Brits are happier than Poles.

Short answer

(a) Positive, (b) Normative, (c) Positive, (d) Normative.

Step-by-step solution

Define Positive and Normative Statements

Positive statements are factual assertions that can be tested or verified. They describe 'what is'. Normative statements are opinion-based and describe 'what ought to be', involving value judgments.

Analyze Statement (a)

Statement (a) 'Annual inflation is below percent.' is a positive statement because it describes a factual situation that can be verified with data.

Analyze Statement (b)

Statement (b) 'Because inflation is low, the government should cut taxes.' is a normative statement. It suggests a policy action based on a judgment rather than a verifiable fact.

Analyze Statement (c)

Statement (c) 'Income is higher in the UK than in Poland.' is a positive statement. It compares incomes in two countries and can be verified using economic data.

Analyze Statement (d)

Statement (d) 'Brits are happier than Poles.' is a normative statement because happiness is subjective and involves value judgments, making it difficult to objectively verify.

Key concepts

Economic Analysis

Economic analysis involves the systematic approach of examining economic factors and understanding their interrelations. It is a method to assess economic phenomena and guide decision-making processes. In practice, economic analysis can help identify how variables like inflation, income, and happiness affect economic policy and everyday life.
A crucial part of economic analysis is determining whether statements are based on empirical evidence, making them positive, or if they are value-driven, making them normative.
This distinction is vital as it enables economists to separate fact from opinion in their analyses, ensuring that policies are data-driven and reflective of the actual economic environment.
By utilizing economic analysis, governments, analysts, and businesses can make informed decisions that have significant impacts on both microeconomic and macroeconomic levels.

Factual Assertions

Factual assertions are statements that are grounded in verifiable factual information. These forms of assertions are often used in the analysis to provide a clear, objective basis for discussions or decisions.
They are descriptive and fall within the category of positive statements.

• Characteristics of Factual Assertions: They describe 'what is' and are testable. They include data or information that can be confirmed through evidence or investigation.
• Examples: Statements such as 'Annual inflation is below a certain percent' or 'Income is higher in the UK than in Poland' are factual assertions. These can be supported by statistical data or financial reports.

Understanding and using factual assertions appropriately strengthens the reliability of economic analyses, allowing for precise assessments of the current economic situation.

Value Judgments

Value judgments refer to opinions that reflect personal beliefs, preferences, or opinions, making them subjective. These are normative statements, as they propose 'what ought to be' rather than describing 'what is.'
Value judgments are integral to policy discussions as they highlight beliefs and values that may drive decisions.
While subjective, they are necessary for evaluating diverse perspectives.

• Characteristics of Value Judgments: They express opinions or ethical statements, and cannot be verified by data. They often suggest what should be done based on personal or societal values.
• Examples: Statements like 'Because inflation is low, the government should cut taxes' reflect value judgments. These involve decisions based on policies and are contingent on subjective perspectives rather than empirical evidence.

In contexts like economic policy debates, recognizing value judgments helps clarify the underlying principles informing policy choices, thus fostering more balanced discussions.