Study GuideEconomics–Introduction1. Economic Policy1.1 What Is Economic Policy?Economic policy refers to the actions taken to guide or manage a country’s economy. These actionsare usually planned and carried out by the government. The main purpose of economic policy is toinfluence how the economy behaves and performs.Governments make economic policies when they decide:•How much money to spend and where to spend it•How much tax people and businesses should pay•How income should be redistributed, such as helping lower-income groups•How much money should circulate in the economyAll of these decisions affect jobs, prices, income, and overall economic health.1.2 How Do Economists Study Economic Policy?Economists study economic policies in two main ways:positive economicsandnormativeeconomics. Each approach has a different purpose.1.3 Positive Economics: Explaining “What Is”Positive economics focuses on describing and explaining how the economy works. It does not involveopinions or personal beliefs about what is good or bad. Instead, it looks at facts and data.A key feature of positive economics is that its ideas can be tested. Economists can collect data andcheck whether a statement is true or false.Example:“An increase in the supply of money leads to an increase in prices.”This statement belongs to positive economics because economists can test it by examining real dataon money supply and prices.Preview Mode
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