What is Positive Economics _ What is Normative Economics

Topics: Economics, Positive economics, Normative economics Pages: 2 (344 words) Published: January 5, 2014
1/3/14

What is Positive Economics | What is Normative Economics

Positive economics is economics that does not apply objectives to what an economy should be doing or what it “ought to be” doing. It ill describe equilibrium levels at certain prices and quantities but give no opinion on whether that is an appropriate price of quantity, It will examine the quantity theory of money and the interest rate while never stating whether an interest rate is good or bad. The “free market” is a system of unabridged interaction between every individual and mathematically maximizes personal and societal utility. In its pure form there is no objectives laid out for people’s interactions/actions except for the intentions those individuals have for themselves. In short, positive economics describes what an economy is and the interactions in it, without applying goals or values to them. Before positive economics was known as such, it was referred to as value-free economics.

Normative economics is the economic branch that tries to put goals on an economy through the control and regulation of what people do. When people say they think the economy is good or the economy is bad, they are using the normative economics mindset. In their mind the economy “ought” to be a certain way and things must be done to control people to make it that way. Whether they think the GDP is too low and therefore they encourage a government to tax money away to increase government consumption to raise the GDP, or they advocate a national bank to control the interest rate to “encourage borrowing” or “encourage spending”, they are pushing a normative economics policy.

In its root form, economics ought to be thought as in the positive sense. Due to people’s drive to control other’s interactions and actions a positive approach is generally taken and the general public thinks of economics in that regard as well.

Why positive economics should be invoked instead of normative economics

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