Introduction to Business EconomicsMTP May 20Question 645 of 209
All Questions

Which of the following statements would you consider to be a normative one?

Options

AFaster economic growth should result if an economy has a higher level of investment.
BChanging the level of interest rates is a better way of managing the economy than using taxation and government expenditure.
CHigher levels of unemployment will lead to higher levels of inflation.
DThe average level of growth in the economy was faster in the 1990s than the 1980s
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Correct Answer

✅ Option b — Changing the level of interest rates is a better way of managing the economy than using taxation and government expenditure.

All Options:

  • AFaster economic growth should result if an economy has a higher level of investment.
  • BChanging the level of interest rates is a better way of managing the economy than using taxation and government expenditure.
  • CHigher levels of unemployment will lead to higher levels of inflation.
  • DThe average level of growth in the economy was faster in the 1990s than the 1980s

Detailed Solution & Explanation

• This question asks us to identify a normative statement. In economics, statements can be positive or normative. • A positive statement is objective and fact-based. It describes "what is" and can be tested or proven true or false. It doesn't involve value judgments. • A normative statement is subjective and value-based. It describes "what ought to be" or "what should be" and involves opinions, beliefs, or recommendations. It cannot be proven true or false. • Let's analyze the options: • (A) "Faster economic growth should result if an economy has a higher level of investment." This is a positive statement. It describes a cause-and-effect relationship that can be tested empirically. • (B) "Changing the level of interest rates is a better way of managing the economy than using taxation and government expenditure." This is a normative statement. The word "better" indicates a value judgment or an opinion about which policy tool is superior. It expresses what "ought to be" done. • (C) "Higher levels of unemployment will lead to higher levels of inflation." This is a positive statement, describing a testable economic relationship (like the Phillips Curve, though the direction stated here is generally inverse). • (D) "The average level of growth in the economy was faster in the 1990s than the 1980s." This is a positive statement. It's a factual claim about historical data that can be verified. • Therefore, option (B) is the correct answer because it contains a subjective judgment ("better way") rather than a verifiable fact.

About This Chapter: Introduction to Business Economics

Paper

Paper 4: Business Economics

Weightage

5%

Key Topics

Meaning, Scope, Price Mechanism

This chapter lays the groundwork for understanding Business Economics as a discipline. It covers the meaning, scope, and nature of economics — including key distinctions like Microeconomics vs Macroeconomics, Positive vs Normative economics, and the fundamental economic problem of scarcity. Students learn how businesses use economic principles for decision-making in a competitive marketplace.

View Official ICAI Syllabus

Exam Strategy Tip

Focus on definitions and distinctions between concepts. Questions often test whether you understand the difference between Micro and Macro, or Positive and Normative statements.

Related Comparison Tables

Microeconomics vs Macroeconomics: The Complete CA Foundation GuidePositive vs Normative Economics: Fact vs Opinion

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