1 Which of the following is a normative statement?

POSITIVE STATEMENTS
A Inflation can be reduced only by increasing the level of
unemployment.
B An increase in the rate of inflation will lead inevitably to an increase
Positive statements are objective statements dealing
in unemployment. with matters of fact or they question about how things
C Unemployment is more harmful than inflation. actually are. Positive statements are made without
D If unemployment is reduced below a certain level, this will lead to obvious value-judgements and emotions. They may
higher inflation. suggest an economic relationship that can be tested
by recourse to the available evidence.
2 Doctors should be paid highly because they have to
undertake a long period of training. Positive economics can be described as “what is, what
What can be concluded about this statement? was, and what probably will be” economics.
A It is a normative statement because high pay does not Statements are based on economic theory rather than
always result from lengthy training. raw emotion. Often these statements will be expressed
B It is a normative statement because it expresses an in the form of a hypothesis that can be analysed and
opinion. evaluated.
C It is a positive statement because doctors do have to train
for a long period.
D It is a positive statement because greater skill results in Examples:
higher pay.
 A rise in interest rates will cause a rise in the
exchange rate and an increase in the demand
for imported products
3 Which is a normative economic statement?
 Lower taxes may stimulate an increase in the
A Money is the least liquid form of wealth.
B Some firms are subsidised by the government. active labour supply
C Some workers earn more than others.  A national minimum wage is likely to cause a
D Taxes are the best way to discourage smoking. contraction in the demand for low-skilled labour
 The UK economy now has lower unemployment
4 A government proposes to introduce a road congestion than Germany
charge which would require private  The American stock market has boomed in
motorists to pay a toll for road use. recent years
Which statement relating to the proposal is normative?
A Bus passengers will benefit at the expense of motorists.
B Motorists with higher incomes will be prepared to pay the NORMATIVE STATEMENTS
charge in return for reduced journey times.
C Motorists with lower incomes will not be able to afford to Normative statements are subjective - based on
use the roads. opinion only - often without a basis in fact or theory.
D The proposal will be unfair to motorists who have no They are value-laden, emotional statements that focus
alternative means of transport.
on "what ought to be".
5 In economics a statement is positive if
A it assumes current economic conditions remain It is important to be able to distinguish between these
unchanged. types of statements - particularly when heated
B it concerns the factual outcomes of an economic action. arguments and debates are taking place. Most
C it examines the desirability of government economic economists tend to adopt a positive approach.
policy.
D it is based upon the opinion of an economic adviser.
Examples:
6 Which is a normative statement?
A Inflation can be reduced only by increasing the level of  The decision to grant independence for the
unemployment. Bank of England is unwise and should be
B An increase in the rate of inflation will lead inevitably to an reversed
increase in unemployment.
 A national minimum wage is totally undesirable
C Unemployment is more harmful than inflation.
D If unemployment is reduced below a certain level, this will as it does not help the poor and causes higher
lead to higher inflation. unemployment and inflation
 The national minimum wage should be
7 Which of the following is a normative statement? increased to �5 as a method of reducing
A If firms spend more on advertising, sales volume may not poverty
rise.  Protectionism is the only proper way to improve
B If firms raise prices, profits will rise. the living standards of workers whose jobs are
C The government should reduce taxes on spending so that threatened by cheap imports
economic welfare will rise.
D Export volumes will rise if the government lowers the
exchange rate.

8 What must be true of a positive statement?

A It is one that can be shown to be correct or incorrect.
B It is one that deals with positive changes in economic well
being.
C It is one that is true by definition.
D It is one with which everyone is in agreement.