BRANCHES OF ECONOMICS

Normative economics:

Normative economics is the branch of economics that incorporates value judgments about what the Economy should be like or what particular policy actions should be recommended to achieve a desirable goal. Normative economics looks at the desirability of certain aspects of the economy. It underlies Expressions of support for particular economic policies. Normative economics is known as statements of opinion which cannot be proved or disproved, and suggests what should be done to solve economic Problems, i-e unemployment should be reduced. Normative economics discusses “what ought to be”.

Examples:

1-A normative economic theory not only describes how money-supply growth affects inflation, but it also provides instructions that what policy should be followed.

2- A normative economic theory not only describes how interest rate affects inflation but it also Provides guidance that what policy should be followed.

Positive economics:

Positive economics, by contrast, is the analysis of facts and behavior in an economy or “the way things are.” Positive statements can be proved or disproved, and which concern how an economy works, i-e unemployment is increasing in our economy. Positive economics is sometimes defined as the economics

of “what is”

Examples:

1- A positive economic theory might describe how money-supply growth affects inflation, but it does not provide any instruction on what policy should be followed.

2- A positive economic theory might describe how interest rate affects inflation but it does not provide any guidance on whether what policy should be followed.

We the people: includes firms, households and the government.

Goods are the things which are produced to be sold.

Services involve doing something for the customers but not producing goods.

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