Economics – Economic methodology | e-Consult

Answer:

Positive statements are claims about how the economy *is* or will *be*. They can be tested and falsified through evidence and data. They are objective and avoid value judgments. Examples include: "Raising the minimum wage will lead to a decrease in employment," or "Increased government spending will increase aggregate demand." These statements can be tested using economic models, statistical analysis, and empirical evidence.

Normative statements are value judgments about how the economy *should* be. They express opinions and beliefs about what is desirable or undesirable. They cannot be proven or disproven through objective evidence. Examples include: "The government should prioritize reducing income inequality," or "It is morally wrong for some people to be poor." These statements involve ethical considerations and personal preferences.

The problem arises when normative statements are treated as positive facts. For instance, assuming that "reducing income inequality is good" is a positive fact allows for policy evaluation based on whether policies achieve this goal. However, the statement itself is a value judgement. Different people may have different views on the desirability of income inequality, leading to disagreements about policy. Treating a normative statement as positive can lead to flawed policy recommendations based on subjective values rather than objective analysis.

• Positive: Can be tested.
• Normative: Expresses opinions.
• Problem: Treating normative as positive leads to flawed policy.