What is Positive Economics?

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The term positive economics refers to the objective analysis in the study of economics. Most economists look at what has happened and what is currently happening in a given economy to form their basis of predictions for the future. This investigative process is positive economics. Conversely, a normative economic study bases future predictions on value judgments.

Definition

Positive economics refers to the objective analysis in economic research. It involves predicting the future by observing facts and current situations in a specific economy. This approach emphasizes facts and causal relationships without involving value judgments.

Origin

The concept of positive economics originated in the early 20th century as economics gradually separated from philosophy and ethics to become an independent science. Its development was influenced by positivist philosophy, which emphasizes gaining knowledge through observation and experimentation.

Categories and Features

Positive economics is mainly divided into microeconomics and macroeconomics. Microeconomics studies the behavior of individual economic units such as consumers and firms, while macroeconomics focuses on overall economic phenomena like inflation and unemployment. The characteristics of positive economics include its objectivity and empirical nature, emphasizing conclusions drawn from data and statistical analysis.

Case Studies

A typical case is the oil crisis in the United States during the 1970s. Economists analyzed the impact of rising oil prices on the economy and predicted the ensuing recession. Another example is the 2008 financial crisis, where economists studied the housing market bubble and risky behaviors of financial institutions to predict the economic downturn.

Common Issues

Investors applying positive economics often face issues with incomplete or misleading data. Additionally, predictions in positive economics are not always accurate due to the dynamic and complex nature of economic environments.

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