The two ways of dividing up economics, and how to tell them apart.
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What is versus what should be: positive and normative economics.
This branch of economics studies how different economic mechanisms function. It deals strictly with facts, observable phenomena, and what is.
Example: Analyzing how a market coordinates economic activities through price signals or measuring the current inflation rate.
Microeconomics looks at single markets; macroeconomics looks at the whole economy.
Microeconomics focuses on the individual 'trees' (specific markets), while Macroeconomics examines the entire 'forest' (the aggregate economy).
Explaining the branches of economics.
Key terms from the chapter.
Classify statements as positive or normative.
Statement: 'Higher interest rates reduce the amount of borrowing.'
Is this a POSITIVE or NORMATIVE economic statement?
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