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IAI Actuarial Core Principles · Business Economics · Relationship between economics and business

Which of the following is a normative statement in economics?

The statement that the government should raise taxes on tobacco is normative because it expresses a value judgement about what ought to happen. The other statements describe facts or cause-and-effect relationships that can be tested against data, so they are positive.

  1. AIndia's repo rate was changed by the central bank at its last meeting
  2. BHigher petrol prices reduced demand for petrol in the last year
  3. CRetail inflation rose when food prices increased
  4. DThe government should raise taxes on tobacco to reduce smokingCorrect
  5. Insurance penetration is lower in India than in some other countries

Explanation

Normative statements contain value judgements about what ought to be. 'Should raise taxes' is a judgement. The others are testable factual or cause-effect claims, i.e. positive statements.

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