Classify each of the following statements as positive or normative. Explain. a. Society faces a short-run trade-off between inflation and unemployment. b. A reduction in the growth rate of the money supply will reduce the rate of inflation. c. The Federal Reserve should reduce the growth rate of the money supply. d. Society ought to require welfare recipients to look for jobs. e. Lower tax rates encourage more work and more saving.

The Phillips Curve represents an economic concept that illustrates a historical inverse relationship between the rate of unemployment and the rate of inflation within an economy.

According to this concept, lower unemployment in the short run is often associated with higher levels of inflation, and vice versa. This trade-off is significant because it suggests that policies aimed at lowering unemployment could lead to higher inflation. The Phillips Curve was a groundbreaking revelation when first introduced in the 1950s by economist A.W. Phillips, yet it's important to understand that its applicability and relevance have evolved over time due to various economic factors such as productivity and globalization affecting the dynamics of inflation and unemployment.

Examining empirical data can substantiate this concept, and thus, a statement such as 'Society faces a short-run trade-off between inflation and unemployment' reflects a positive, testable assertion about economic behavior that directly relates to the Phillips Curve theory.

Monetarist theories, pioneered by economist Milton Friedman, revolve around the role of government in controlling the amount of money that circulates in an economy.

These theories emphasize that the money supply has a dominant influence on nominal variables in the short term, and on real variables in the long term. Monetarists argue that variations in the money supply wield significant impacts on inflation, employment, and the production levels of an economy. The assertion that 'A reduction in the growth rate of the money supply will reduce the rate of inflation' is a classic monetarist viewpoint that can be tested through statistical methods, making it a positive statement.

This cause-effect relationship highlighted by monetarist theories has important implications for the formulation of monetary policies and the understanding of how changes in the money supply influence overall economic activity.

The Federal Reserve, often simply referred to as 'the Fed', is the central bank of the United States tasked with carrying out monetary policy, which includes managing the money supply and interest rates to achieve macroeconomic objectives like price stability and full employment.

Normative statements about Federal Reserve policy, like 'The Federal Reserve should reduce the growth rate of the money supply,' articulate opinions on what the Fed's policy actions ought to be, rather than stating empirically verifiable facts. Such statements are usually grounded in the speaker's own economic philosophy and objectives they believe the Fed should aim to achieve. While these opinions cannot be tested or proven true or false in the same way as positive statements, they are crucial to public discourse and policy-making, as they reflect different economic paradigms and preferences for how the economy ought to be managed.

Economic behavior refers to the actions that individuals, households, firms, and governments take as they make choices regarding the allocation of resources.

Positive statements about economic behavior, such as 'Lower tax rates encourage more work and more saving,' relate to cause-and-effect relationships between economic policies and individual or collective actions. These statements can be tested by analyzing economic data, such as labor supply responses to tax rate changes or shifts in savings rates. Understanding economic behavior is fundamental to crafting effective economic policies, as it allows for predictions about how people are likely to respond to certain policy measures based on observed tendencies and past empirical evidence.