economic statement. In contrast, normative economics is analysis that prescribes what an individual or
society ought to do. It is subjective and depends on personal preferences, tastes, attitudes, feelings, or
ethical judgments. ʺPollution in developing countries is one of the biggest global environmental problemsʺ
is an example of a normative economic statement.
Difficulty: Easy
AACSB: Analytical Thinking
Topic: Positive Economics and Normative Economics
21) Robert and Janet are discussing the unemployment and inflation in their country. Robert, on the basis
of a recent newspaper report, claims that a 5 percent reduction in unemployment will lead to a 2 percent
rise in inflation. In contrast, Janet insists that inflation is a far bigger problem than unemployment and
should be considered as of prime importance. Classify Robertʹs and Janetʹs statements as descriptive or
advisory. Explain your answer.
Answer: Robert claims that a 5 percent reduction in unemployment will lead to a 2 percent increase in
inflation. This statement represents predictions that can be verified with data. Therefore, Robertʹs
approach is positive, which means it is an analysis of things as they are. Positive economics describes what
has happened or predicts what will happen. The conclusion of his statement can be verified with data and
is not subject to tastes and preferences.
Janet claims that inflation is a far bigger problem than unemployment and should be addressed as an issue
of prime importance. Janetʹs statement is normative. Normative economics is analysis that recommends
what people ought to do. Unlike Robertʹs statement, Janetʹs belief that inflation is a bigger problem than
unemployment is based on her values or ethical judgments. Therefore, while Robertʹs statement is
descriptive in nature, Janetʹs statement is advisory.
Difficulty: Medium
AACSB: Application of Knowledge
Topic: Positive Economics and Normative Economics
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22) Classify the following as positive economics statements or normative economics statements.
a) An increase in an individualʹs income increases consumption, but by an amount less than the increase in
income.
b) The government should undertake the responsibility of providing healthcare to all its citizens.
c) The government should fund infrastructure projects to foster economic development.
d) An increase in net exports has a positive effect on a countryʹs national income.
e) The gross domestic product of India is increasing at 5 percent annually.
Answer: a) Positive economic statement
b) Normative economic statement
c) Normative economic statement
d) Positive economic statement
e) Positive economic statement
Difficulty: Medium
AACSB: Application of Knowledge
Topic: Positive Economics and Normative Economics
23) ________ is the study of how individuals, households, governments, and firms make choices and how