Positive vs Normative Economics
Positive
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Focuses on objective and fact-based analysis. It describes and explains economic phenomena without incorporating value judgments.
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Example: "The unemployment rate is 6%."
Normative
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Involves value judgments about what the economy should be like. It deals with opinions on economic policies and outcomes.
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Example: "The government should reduce unemployment to 4%."
Theoretical vs Empirical Economics
Theoretical
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​Involves the creation and use of models and theories to understand and predict economic behavior. This includes abstract reasoning to explain how economies function.
Empirical
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​Uses data, statistics, and econometrics to test theories and analyze real-world economic issues. It involves collecting and interpreting data to support or refute economic hypotheses.
Ceteris Paribus
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A Latin phrase meaning "all other things being equal."
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It is used in economic modeling to isolate the effect of one variable by holding others constant.
Simplification and Assumptions
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Economists make assumptions to simplify reality and focus on the most important factors.
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This helps in creating models that are easier to analyze and understand.
Diagrams and Graphs
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Visual tools used to represent economic models and theories.
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They help illustrate relationships between variables and make complex concepts more comprehensible.
Economic Growth
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An increase in the production of goods and services over time, leading to higher national income and improved living standards.
Economic Stability
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Achieving steady growth, low inflation, and low unemployment. It aims to avoid large fluctuations in the economy.
Fiscal Policy
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Government policy on taxation and spending to influence economic activity. It includes adjusting tax rates and government spending levels.
Monetary Policy
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Central bank policy on controlling the money supply and interest rates. It includes adjusting interest rates and conducting open market operations to influence economic conditions.