Final answer:
The statement is false; neutral goods and normal goods are not interchangeable. Normal goods have positive income elasticity and are divided into necessities (elasticity < 1) and luxury goods (elasticity > 1).
Step-by-step explanation:
The statement that economists use the terms neutral good and normal good interchangeably is false. A normal good is one for which demand increases as income increases, and it has a positive income elasticity. This category of goods can be divided into two types based on their income elasticity: those with an income elasticity less than one, known as necessities, and those with an income elasticity greater than one, known as luxury goods. Products such as basic food items and clothing would be considered necessities, as they are essential for living and consumption increases modestly with increased income. On the other hand, items like expensive cars or jewelry are considered luxury goods, as consumption of these increases more significantly when people earn higher incomes.
It's crucial to understand these concepts to analyze consumer behavior and the effect of income changes on market demand.