IAI Actuarial Core Principles · Business Economics · Relationship between economics and business
Which of the following is the best example of a positive (as opposed to normative) economic statement?
The statement that a rise in the repo rate will reduce home loan demand is positive because it is a testable claim about cause and effect. The others contain value judgements about what should or ought to happen.
- AIf the repo rate rises by 0.5%, home loan demand will fallCorrect
- BThe government should reduce income tax to help families
- CInsurance companies ought to charge lower premiums
- DInflation is unfairly harming pensioners and must be tackled first
- It is better for firms to pay higher wages
Explanation
A positive statement describes cause and effect and can in principle be tested against evidence. The other options contain value judgements such as 'should', 'ought', 'unfairly' or 'better', making them normative.
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