CATHERINE RAMPELL
Dollars to doughnuts.
The Department of Education on Wednesday released its latest report on the economic proficiency of 12th graders, based on the test scores of nearly 11,000 students tested in 2012. It found little change in average economic literacy compared to test scores from 2006, although students in the lower part of the score distribution (at the 10th and 25th percentiles) made gains.
In case you want to know how you would stack up against these students, here are some sample questions from the report, followed by the answers.
1. Suppose that the price of grapes increases by a large amount. What will happen in the short term to the quantity of grapes demanded? Explain why.
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 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
4. A high rate of unemployment that lasts for several years has economic costs for a nation. What are two of these economic costs?
5. a. Explain why United States steel manufacturers would support a tariff on imported steel.
b. Explain why United States steel workers would support a tariff on imported steel.
c. Explain why United States consumers would be hurt by a tariff on imported steel.
d. Explain why a steel tariff might be adopted even if it hurts United States consumers.
6. Which of the following is one way in which economic growth can help a nation reduce its poverty level and increase its standard of living?
A) Economic growth increases the demand for imports, thereby raising the demand for foreign exchange.
B) Economic growth increases the supply of labor, thereby increasing wages.
C) Economic growth increases disposable income, thereby raising the demand for luxury items.
D) Economic growth increases the demand for labor, thereby raising income levels.
Answers from the report:
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1. Demand will fall. When the prices of goods or services increase, individuals will look for substitute goods to avoid paying the higher price, and therefore, the quantity of goods or services demanded will fall.
2. C
3. A
4. Acceptable answers include: expenses incurred by governments when providing financial support to the unemployed; decrease in aggregate demand in the economy that is caused because of lower consumer incomes; loss of tax revenue to the government; increases in poverty; decreases in the standard of living; and increases in the cost of providing job training programs to the unemployed.
5. (a) Acceptable answers: The price on imported steel would rise, so people would use more U.S. steel. Domestic manufacturers might also favor tariffs because tariffs would tend to increase revenue and profits for domestic producers and would decrease foreign (import) competition in an industry. (b) If imported steel is more expensive and people buy more U.S. steel, then U.S. companies will need more workers to handle increased demand. The same forces might also increase wages at the U.S. steel companies. (c) The tariff would increase the price of imported steel, so U.S. consumers could be harmed because they might pay higher prices for goods using steel as an input in their production. (d) The tariff would bring in money for the government. Tariffs are also sometimes adopted to protect jobs in a given industry as part of the political process.
6. D
Article source: http://economix.blogs.nytimes.com/2013/04/24/test-your-economic-literacy/?partner=rss&emc=rss
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