Normative Economics

A A A

DEFINITION

A perspective on economics that incorporates subjectivity within its analyses. It is the study or presentation of "what ought to be" rather than what actually is. Normative economics deals heavily in value judgments and theoretical scenarios. It is the opposite of positive economics.

INVESTOPEDIA EXPLAINS

Normative statements are often heard in the media because they tend to represent a theory or opinion rather than objective analysis. Normative economics is a valuable way to establish goals and generate new ideas, but it should not be used as a basis for policy decisions.

An example of a normative economic statement would be, "We should cut taxes in half to increase disposable income levels". By contrast, a positive (or objective) economic observation would be, "Big tax cuts would help many people, but government budget constraints make that option infeasible."


VIDEO

RELATED TERMS
  1. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output ...
  2. Positive Economics

    The study of economics based on objective analysis. Most economists today focus ...
  3. Economics

    A social science that studies how individuals, governments, firms and nations ...
  4. Macroeconomics

    The field of economics that studies the behavior of the aggregate economy. Macroeconomics ...
  5. Microeconomics

    The branch of economics that analyzes the market behavior of individual consumers ...
  6. Neoclassical Economics

    An approach to economics that relates supply and demand to an individual's rationality ...
  7. Endogenous Growth Theory

    An economic theory which argues that economic growth is generated from within ...
  8. Subprime Meltdown

    The sharp increase in high-risk mortgages that went into default beginning in ...
  9. Event Risk

    1. The risk due to unforeseen events partaken by or associated with a company. ...
  10. Sharpe Ratio

    A ratio developed by Nobel laureate William F. Sharpe to measure risk-adjusted ...
Related Articles
  1. Positive And Normative Economics
    Economics

    Positive And Normative Economics

  2. Explaining The World Through Macroeconomic ...
    Options & Futures

    Explaining The World Through Macroeconomic ...

  3. Economics Basics
    Economics

    Economics Basics

  4. Economic Indicators To Know
    Retirement

    Economic Indicators To Know

  5. Getting On The Right Side Of The P/E ...
    Fundamental Analysis

    Getting On The Right Side Of The P/E ...

  6. Herding Tendencies Among Analysts
    Investing Basics

    Herding Tendencies Among Analysts

  7. Understanding Leveraged Buyouts
    Fundamental Analysis

    Understanding Leveraged Buyouts

  8. How The Sarbanes-Oxley Era Affected ...
    Fundamental Analysis

    How The Sarbanes-Oxley Era Affected ...

  9. Where's The Market Headed Now?
    Fundamental Analysis

    Where's The Market Headed Now?

  10. Does Higher Risk Really Lead To Higher ...
    Active Trading

    Does Higher Risk Really Lead To Higher ...

comments powered by Disqus
Hot Definitions
  1. Maintenance Margin

    The minimum amount of equity that must be maintained in a margin account. In the context of the NYSE and FINRA, after an investor has bought securities on margin, the minimum required level of margin is 25% of the total market value of the securities in the margin account.
  2. Leased Bank Guarantee

    A bank guarantee that is leased to a third party for a specific fee. The issuing bank will conduct due diligence on the creditworthiness of the customer looking to secure a bank guarantee, then lease a guarantee to that customer for a set amount of money and over a set period of time, typically less than two years.
  3. Degree Of Financial Leverage - DFL

    A ratio that measures the sensitivity of a company’s earnings per share (EPS) to fluctuations in its operating income, as a result of changes in its capital structure. Degree of Financial Leverage (DFL) measures the percentage change in EPS for a unit change in earnings before interest and taxes (EBIT).
  4. Jeff Bezos

    Self-made billionaire Jeff Bezos is famous for founding online retail giant Amazon.com.
  5. Re-fracking

    Re-fracking is the practice of returning to older wells that had been fracked in the recent past to capitalize on newer, more effective extraction technology. Re-fracking can be effective on especially tight oil deposits – where the shale products low yields – to extend their productivity.
  6. TIMP (acronym)

    'TIMP' is an acronym that stands for 'Turkey, Indonesia, Mexico and Philippines.' Similar to BRIC (Brazil, Russia, India and China), the acronym was coined by and investor/economist to group fast-growing emerging market economies in similar states of economic development.
Trading Center