What is a positive economy?
The positive economy is a social science based on factual analysis and cause and effect that avoids valuable judgments, opinions or moral and ethical claims. Unlike the normative economy that subjectively emphasizes what it should be, positive economics states what is, what was, or what will probably be in a way that can be tested for accuracy. For example, a statement "Reduction of interest rates will encourage consumers to spend" can be considered positive, while "the government should regulate the cost of food to feed the poor" is a normative economic statement. The first is a neutral statement based on facts that can be demonstrated with observable evidence, while the second is a subjective statement presented as an emotional attraction.
The reason why the economic situation has developed is a typical focus of the positive economy. If the price of commodity has suddenly decreased or has increased significantly in a few months or a year, a positive economist wouldtried to determine the factors that affected the price. On the other hand, a normative economist may indicate what policy should be adopted to reverse the effects of price increase or decrease.
Positive economists also help to determine the likely consequences of new economic policy or change of policy, such as tax increases. One of the most common tools used for such an evaluation is called cost analysis. The cost analysis compares the total cost of the company with expected benefits. Other related tools for evaluation include the analysis of economic impacts, analysis of fiscal impacts and analysis of cost efficiency.
Although the positive economy can help to predict the results of economic policy through statistical methodology and theory, positive economists do not intentionally seek changes in policy or to judge existing or earlier rules. Instead, they try to objectively solve ECOnomic problems by studying and testing evidence. Politicians and the general public are left to evaluate and choose what economic policies should be discarded, accepted or changed on the basis of results.
The difference between the positive and normative economy was first elaborated by John Neville Keynes at the end of the 19th century and recently in the 1953 essay by Milton Friedman. Friedman assumed that as a science, a positive economy should address objective and observable statements. According to Friedman, the value of the theory of economics is determined by its accuracy as a predictor of future economic events and consequences.
The combination of positive and normative economic statements is commonly used in the media. Normative economic statements are preferred by political leaders who have economic problems or who want to influence economic policy. Positive economists emphasize the scientific aspect of a particular field and are limited to questions that CBI resolved with an observable cutterAZEM.