Economic Literacy Rates Improve

The National Assessment of Educational Progress has released the results of a nationwide economic literacy test given to high school seniors.  Average scores did not change significantly, but scores increased for some lower performing student groups as compared to a similar test that was administered in 2006.  Key findings include:

  • Hispanic students scored higher, and a larger percentage performed at or above Basic
  • Students with parents who did not finish high school scored higher
  • Lower performing students made gains

Image of a graphic showing In 2006, average score = 150. 21 (significant) Below Basic, 38 At Basic, 39 At Proficient, and 3 At Advances; In 2012 average score = 152, 18 Below Basic, 39 At Basic, 40 At Proficient, and 3 At Advanced.

The entire report can be found here.

Are you smarter than a 12th grader?  Answer the sample questions from the test itself and find out how well you fare.  The full test bank is available for review here.

1. Which of the following changes is most likely to cause an increase in employment?

A. An increase in consumer spending
B. An increase in interest rates
C. A decrease in business investment
D. A decrease in income

2. Which of the following best describes an opportunity cost for a student who chooses to quit a full-time job to go to college?

A. Paying state and federal income tax
B. Having a higher level of education
C. Giving up current wages and benefits
D. Paying for housing and meals

3. Which of the following is the most likely effect of a large decrease in total demand for goods and services?

A. Inflation will increase and unemployment will decrease.
B. Inflation will decrease and unemployment will decrease.
C. Inflation will decrease and unemployment will increase.
D. Inflation will increase and unemployment will increase.

4. Explain how and why a reduction in taxes would affect employment in the short term.

5. Nancy has just inherited $2,000. Within the next year, she needs to purchase furniture that costs $2,000. If Nancy puts the $2,000 in her savings account, she will earn 2 percent interest for the year. Nancy expects that the current inflation rate of 3 percent will continue for at least one year. From an economic perspective, explain why Nancy should buy the furniture now instead of putting the $2,000 into her savings account.

Answers

1. A
2. C
3. C
4. Reducing taxes promotes more employment because businesses can hire more employees.  Decreasing tax rates increases consumer income and spending, which stimulates the economy and permits businesses to employ more people.
5. Nancy should purchase the furniture now because the real interest rate is negative after inflation is taken into account.  In one year’s time, her purchasing power will be less than it is today.  The negative real interest rate reduces the economic incentive for Nancy to deposit her money in the bank and not purchase the furniture.

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