Suppose There Are Two Members of the U

question 103

Multiple Choice

Suppose there are two members of the U.S. Congress who were once economics professors. Why is it important to be able to distinguish their positive from their normative statements about economic policy?

• A)​Their positive statements help us understand the economy's response to a particular policy, while their normative statements reflect their value judgments.
• B)​Their positive statements help us understand the good results of a policy change, and their normative statements help us understand the negative results.
• C)​We really do not have to worry about them since trained economists never make normative statements.
• D)​Economists are always making assumptions, and policy should not be based on assumptions.

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Definitions:

Real Rate of Interest

Real Rate of Interest is the interest rate that has been adjusted to remove the effects of inflation, providing a more accurate measure of the cost of borrowing.

Rate of Inflation

This refers to the annual percentage increase in the general price level of goods and services in an economy over a period of time.

Effective Usury Laws

Laws designed to set maximum interest rates that can be charged on loans, to prevent lenders from charging excessively high rates.

Money Markets

Financial markets for short-term borrowing and lending, dealing in securities such as Treasury bills and commercial paper.