U.S. Students Score Low on Economics Test

L.A. Times Archives

Dec. 29, 1988 12 AM PT

Associated Press

NEW YORK —

American high school students have an alarming deficiency of economic knowledge, according to a survey that revealed two-thirds didn’t understand profits and more than half couldn’t supply a definition for demand.

Economic education is “not in the kind of shape we want it to be,” former Federal Reserve Board Chairman Paul A. Volcker said Wednesday at a news conference sponsored by the Joint Council on Economic Education, a nonprofit coalition that underwrote the survey.

The survey, a 46-question multiple-choice exam taken in May, 1986, by 8,205 11th- and 12th-grade students in public and private high schools in 42 states, found:

- Only 34% could correctly define profit as “revenue minus costs.”

- 39% selected the correct definition of gross national product: “the market value of the nation’s output of final goods and services.”

- Only 45% realized that government deficits result when spending exceeds tax revenues.

- Less than half--47.7%--knew that “economic demand” for a product refers to how much “people are willing and able to buy at each price.”

Required in Japan

The news is “not good if you believe that a basic understanding of our economic system is important if this country is indeed to be effective in what everyone realizes is a period of global competition,” said Volcker, who confessed that he himself had never taken economics in high school.

The exam was the first to document a paucity of economic knowledge among U.S. students.

Economics thus joins a growing list of disciplines including writing, geography, foreign language, science and math where recent tests have shown U.S. students achieving at dismal levels.

The “Test of Economic Literacy” was devised by William B. Walstad, a University of Nebraska-Lincoln economics professor, and John C. Soper, an economics professor at John Carroll University in Cleveland.

Walstad urged states and school districts to make economics a part of the curriculum from elementary school on, to require it for high school graduation and to provide teachers with the necessary background to teach it.

Often Left Out

“Teachers are the first to realize that they have inadequate background in the subject,” said Roxanne E. Bradshaw, secretary-treasurer of the National Education Assn., the 1.9 million-member teacher union.

Japan requires all high school students to take at least a semester of economics, Walstad said. But only 28 states require economics in the curriculum in some form and just 15 require a specific course in economics for graduation.

“All too often economics is simply left out of the list of required subjects in recent calls for educational reform,” Walstad said.

On average, students correctly answered only about 40% of the test questions. But they did even more poorly on questions pertaining to inflation, the effects of tariffs on trade and the impact of investment on economic growth.

Economic illiteracy is apparently even more pronounced among minority students.

Among students who had some high school economics, whites scored an average of 53%, while blacks scored 42% and Hispanics 46%.

Among youngsters who had taken no economics courses, whites answered 41% of the questions correctly, blacks 33% and Hispanics 36%.

Rudolph Oswald, director of research of the AFL-CIO, called the results “appalling.”

“They rationalize better than any series of speeches the reasons why organized labor feels it can only gain from an economically literate population,” Oswald said.

TESTING FOR ECONOMIC LITERACY Here are sample questions and answers from the Test of Economic Literacy taken by more than 8,000 high school students in 42 states. The answers appear below, including the percentage of students correctly answering each question.

1. Of the following, which is the most general cause of low individual incomes in the United States?

(a) Lack of valuable productive services to sell

(b) Discrimination against non-union workers

(d) Progressive tax rates

2. Sandy Smith can take a job paying $10,000 a year when she graduates from high school, or she can go to college and pay $5,000 a year for tuition. Measured in dollars, what is her opportunity cost of going to college next year?

(a) $0

(b) $5,000

(d) $15,000

3. Which one of the following groups typically is hurt the most by unexpected inflation?

(a) Manufacturers

(b) Bondholders

(d) Farmers

4. Joining a union and electing representatives to negotiate with the employer is referred to as

(a) a closed shop

(b) the seniority system

(d) right-to-work legislation

5. The price of shoes is likely to be increased by