National Assessment Governing Board

U.S. Department of Education

Economics Framework 

for the 2006

National Assessment of 

Educational Progress
Darvin M. Winick, Chair 

President

Winick & Associates

Dickinson, Texas 

Sheila M. Ford, Vice Chair 

Former Principal

Horace Mann Elementary

School

Washington, D.C.

Francie Alexander 

Chief Academic Officer,

Scholastic, Inc. 

Senior Vice President, 

Scholastic Education 

New York, New York 

David J. Alukonis 

Chairman

Hudson School Board 

Hudson, New Hampshire 

Amanda P. Avallone 

Assistant Principal and 

Eighth-Grade Teacher

Summit Middle School 

Boulder, Colorado 

Honorable Jeb Bush 

Governor of Florida

Tallahassee, Florida

Barbara Byrd-Bennett 

Chief Executive Officer

Cleveland Municipal 

School District

Cleveland, Ohio 

Carl A. Cohn 

Superintendent 

San Diego City Schools

San Diego, California

Shirley V. Dickson 

Educational Consultant 

Laguna Niguel, California 

John Q. Easton 

Executive Director

Consortium on Chicago 

School Research

Chicago, Illinois

The National Assessment Governing Board

The National Assessment Governing Board (NAGB) was created 

by Congress to formulate policy for the National Assessment of 

Educational Progress (NAEP). Among the Board’s responsibilities 

are developing objectives and test specifications, and designing the 

assessment methodology for NAEP.

Honorable Dwight Evans 

Member

Pennsylvania House of

Representatives 

Philadelphia, Pennsylvania

David W. Gordon 

Sacramento County 

Superintendent of Schools 

Sacramento County Office 

of Education 

Sacramento, California 

Kathi M. King 

Twelfth-Grade Teacher

Messalonskee High School

Oakland, Maine

Honorable Keith King 

Member

Colorado House of

Representatives 

Colorado Springs, Colorado

Kim Kozbial-Hess 

Fourth-Grade Teacher

Fall-Meyer Elementary 

School

Toledo, Ohio

Andrew C. Porter 

Director, Learning Sciences 

Institute

Peabody Institute

Vanderbilt University

Nashville, Tennessee

Luis A. Ramos 

Community Relations 

Manager

PPL Susquehanna

Berwick, Pennsylvania 

Mark D. Reckase 

Professor

Measurement and 

Quantitative Methods

Michigan State University

East Lansing, Michigan

John H. Stevens 

Executive Director

Texas Business and

Education Coalition

Austin, Texas

Mary Frances Taymans 

Executive Director

National Catholic

Educational Association

Washington, D.C.

Oscar A. Troncoso

Principal

Socorro High School

Socorro Independent 

School District

El Paso, Texas

Honorable Thomas J. Vilsack

Governor of Iowa 

Des Moines, Iowa 

Michael E. Ward 

Former State Superintendent

of Public Instruction

North Carolina Public Schools

Jackson, Mississippi

Eileen L. Weiser 

Member, State Board of Education 

Michigan Department of

Education

Lansing, Michigan

Grover (Russ) Whitehurst 

(Ex Officio)

Director 

Institute of Education Sciences

U.S. Department of Education

Washington, D.C.

Charles E. Smith

Executive Director

NAGB

Washington, D.C.

Members
Economics Framework 

for the 2006

National Assessment of 

Educational Progress

Developed Under Contract Number ED01CO0130 for the National 

Assessment Governing Board by the American Institutes for Research, 

the National Council on Economic Education, and the Council of Chief 

State School Officers
National Assessment Governing Board

Darvin Winick

Chair

Sheila M. Ford

Vice Chair

Charles Smith

Executive Director

Sharif Shakrani

Deputy Executive Director

Mary Crovo

Project Director

Economics Project

American Institutes for Research

Stephen Klein

Julia Mitchell

National Council on Economic Education

Claire Melican

Vanderbilt University

Stephen Buckles

Council of Chief State School Officers

Wayne Martin

Economics Framework for the 2006 National Assessment of Educational 

Progress.

Developed for the National Assessment Governing Board under contract number ED01CO0130 by the American Institutes for Research, the 

National Council on Economic Education, and the Council of Chief State 

School Officers.

For further information, contact the National Assessment 

Governing Board: 800 North Capitol Street NW.

 Suite 825

 Washington, DC 20002

 www.nagb.org 
iii

Table of Contents

Executive Summary ....................................................................... v

Chapter 1: Introduction .............................................................. 1

What is the National Assessment of Educational 

Progress (NAEP)? ................................................................. 1

Who is responsible for NAEP? ................................................. 1

What kind of information does NAEP collect? ......................... 1

How does NAEP collect this information? .................................. 2

How are NAEP achievement results reported? ............................ 2

What is the 2006 NAEP Economics Assessment?....................... 3

What is the NAEP Economics Framework 

Development Project? ............................................................. 4

Chapter 2: Economic Education ................................................ 7

What is the current state of economic education 

in the United States?.............................................................. 7

Chapter 3: Content .................................................................... 11

The Market Economy ............................................................. 13

The National Economy ............................................................ 23

The International Economy...................................................... 30

Chapter 4: Characteristics of the Assessment......................... 35

Cognitive Categories.................................................................. 35 

Contexts and Applications ........................................................ 37

Graphing, Table and Chart Interpretation, and Calculation

Skills...................................................................................... 39 

Types of Items........................................................................... 40

Economic Terminology.............................................................. 42 

Preliminary Descriptions of Achievement Levels..................... 43

Appendix A: References.............................................................. 47

Appendix B: NAEP Economics Framework Project ................... 51

Appendix C: Steering Committee Charge to the Planning

Committee................................................................................. 57

Appendix D: Sample Items.......................................................... 63

The Market Economy ............................................................. 65

The National Economy ............................................................ 67

The International Economy...................................................... 70
iv

Appendix E: Framework Development Process.......................... 73

Appendix F: Acknowledgments................................................... 79
v

Executive Summary

The purpose of economic education is to enable individuals to 

function effectively both in their own personal lives and as 

citizens and participants in an increasingly connected world 

economy. Both knowledge of economic concepts and ideas and the 

ability to apply basic economic analysis to solve everyday problems are necessary for an individual to function as a productive 

member of society—as a worker, a saver, an investor, a consumer, 

or an active citizen.

This framework document provides a guide for the development of the 2006 National Assessment of Educational Progress 

(NAEP) Economics Assessment. The framework, together with 

Assessment and Item Specifications: NAEP 2006 Economics and 

Recommendations on Background Variables: NAEP 2006 Economics Assessment, makes explicit recommendations to the National 

Assess­ment Governing Board (NAGB) on the content and format 

of the assessment. 

This framework is designed to assess the outcomes of students’ 

education in and understanding of economics in grade 12 as part of 

NAEP. The framework is based on a definition of economic literacy 

as the ability to identify, analyze, and evaluate the consequences of 

individual decisions and public policy. Economic literacy includes 

an understanding of:

• the fundamental constraints imposed by limited resources, the 

resulting choices people have to make, and the tradeoffs they 

face;

• how economies and markets work and how people function 

within them;

• the benefits and costs of economic interaction and interdependence among people and nations.

Economic literacy also includes having the skills that allow 

people to function effectively as consumers, producers, savers, 

investors, and responsible citizens. These skills include economic 

reasoning, problem solving, decisionmaking, and analyzing reallife situations.

The content of the framework is grouped for reporting purposes 

into three areas—the Market Economy, the National Economy, and 
vi

the International Economy. The core ideas in the Market Economy 

content area, which comprises 45 percent of the assessment, are 

the relevance of limited resources, how buyers and sellers interact 

to create markets, how these markets allocate resources, and the 

economic role of government in a market economy. This category 

focuses on concepts such as scarcity, choice, opportunity costs, supply and demand, profit, competition, incentives, individual incomes, 

the comparison of benefits and costs in making decisions, and the 

evaluation of short- and long-run consequences of decisions. 

The National Economy content area (40 percent of the assessment) includes an understanding of the data that describe the overall conditions in the U.S. economy, the factors that cause changes 

in those conditions, and the appropriate policy alternatives. This 

category focuses on such concepts as unemployment, inflation, 

economic growth, money, gross domestic product (GDP), and the 

mechanics and the appropriate uses of monetary and fiscal policies.

The International Economy content area (15 percent of the assessment) includes an understanding of the reasons for individuals 

and businesses to specialize and trade and the rationale for specialization and trade across international borders; an ability to compare 

the benefits and costs of that specialization and resulting trade for 

consumers, producers, and governments; and an understanding that 

this trade brings additional complications. This category includes 

concepts such as voluntary exchange, specialization, interdependence, imports and exports, barriers to trade, and the process and 

consequences of exchange rate determination.

Assessing what students know and can do in economics offers an 

opportunity to measure their understanding and skills in a wide variety of important and daily events and problems. The NAEP Economics Assessment takes advantage of that opportunity by placing 

most of the assessment items in specific relevant and useful contexts and applications. Between 20 and 30 percent of the items will 

be written in each of three contexts—an individual and household 

context, including decisions about earning, saving, and personal finance challenges; a business context with a focus on entrepreneurs, 

workers, producers, and investors; and a public context, including 

items related to government, policy, citizenship, and domestic and 

international organizations.

The NAEP Economics Assessment will include items that require students to use different cognitive skills to demonstrate their 
vii

understanding of, and ability to use, economics. Students will be 

expected to demonstrate Knowing skills that use recognition and 

recall of fundamental ideas, Applying skills that use principles and 

concepts to solve real problems, and Reasoning skills that require a 

broad range of critical-thinking abilities. Approximately one-third 

of the assessment in each content area will be devoted to each cognitive category.

The framework includes recommendations for the types of items 

to be used in the NAEP Economics Assessment. Students will 

spend approximately 60 percent of their time on multiple-choice 

items, 30 percent on short constructed-response items, and 10 

percent on extended constructed-response items. All three types 

of items will be included in each of the three content areas.

The framework uses the NAEP achievement level criteria of 

Basic, Proficient, and Advanced to describe what students should 

know and be able to do. Basic achievement is partial mastery of 

prerequisite knowledge and skills. The Proficient level represents 

solid academic performance. The Advanced level signifies superior 

performance.

The Assessment and Item Specifications: NAEP 2006 Economics is a companion document to the Assessment Framework: 2006 

National Assessment of Educational Progress in Economics. The 

specifications document translates the framework into guidelines 

for developing items and for developing the assessment as a whole. 

The primary purpose of the specifications document is to provide 

the National Center for Education Statistics (NCES) and its assessment development contractor with information that will ensure that 

the NAEP Economics Assessment reflects the intent of the NAEP 

Economics Framework adopted by the National Assessment Governing Board.


Chapter 1

Introduction

What is the National Assessment of Educational 

Progress (NAEP)?

Often called the “Nation’s Report Card,” the National Assessment of Educational Progress (NAEP) is the only nationally representative, continuing assessment of what America’s students know 

and can do in various subject areas. NAEP provides a comprehensive measure of students’ learning at critical junctures in their 

school experience. As mandated by Congress in Public Law 107-

279, the purpose of NAEP is to provide, in a timely manner, a fair 

and accurate measurement of student academic achievement and to 

report trends in such achievement. NAEP accomplishes these tasks 

by regularly assessing what students know and can do in various 

subject areas in grades 4, 8, and 12.

Who is responsible for NAEP?

NAEP has three components: policy, operations, and implementation. The National Assessment Governing Board (NAGB), whose 

members are appointed by the Secretary of Education, sets policy 

for NAEP. NAGB selects the subject areas to be assessed, develops 

assessment objectives and specifications, develops guidelines for 

reporting, and undertakes other policy duties. The National Center 

for Education Statistics (NCES), in turn, is responsible for overseeing NAEP operations. Implementation of the NAEP program is 

carried out through contracts, grants, and cooperative agreements 

with qualified organizations. These organizations are responsible 

for developing the assessment instruments, selecting the school 

and student samples, scoring student responses, analyzing the data, 

writing NAEP reports, and performing other NAEP tasks. 

What kind of information does NAEP collect?

 NAEP collects basically two types of information: from the assessment, student performance data on cognitive items in a subject 
area and from questionnaires, background data. The assessment 

instrument includes a variety of tasks, from multiple-choice items 

to extended constructed-response items. The variety in these assessment instruments provides students with multiple ways to demonstrate their understanding of the content being assessed.

NAEP collects background data through questionnaires completed by the students, their teachers, and the school principal or 

his or her designee. Some of these questions are standard for every 

NAEP assessment, regardless of subject, and concentrate on student demographics such as gender, race/ethnicity, and region. Other 

background information is collected on factors related to academic 

performance, such as time spent by students on homework and 

teachers’ instructional practices. In addition, specific questions may 

directly relate to the subject being assessed. For example, in economics, students might be queried about whether they have had a 

course in economics at any point in their high school careers.

How does NAEP collect this information?

NAEP relies on two forms of sampling: student sampling and 

item sampling. Through a rigorous sampling process, NAEP samples students nationwide to participate in the assessment at each 

grade level—4, 8, and 12. The sample is large enough to produce 

reliable and valid results at the national level and for subgroups of 

students defined by specified characteristics (e.g., gender, race/ethnicity, eligibility for the federal Free/Reduced-Price Lunch Program, 

and region). In subjects whose results are reported at the state level 

(reading, mathematics, writing, and science), samples of students 

are selected from each participating state so that NAEP can produce 

reliable and valid results at the state level. In item sampling, each 

student generally answers two blocks (or sets) of items in 50 minutes. NAEP can use a large number of items in an assessment for a 

given subject area and grade level because of this sampling design.

How are NAEP achievement results reported?

NAEP provides information to the public primarily through The 

Nation’s Report Card. By law, no school or student performance 

results are reported for NAEP. In fact, the NAEP design precludes 

the reporting of such data. All results are reported for representative 

samples of students. 


Subject-matter achievement is reported by scale scores and by 

achievement levels. NAEP scale scores provide information about 

the distribution of student achievement. Scale scores usually range 

from 0 to 500 and are reported as averages and percentiles. However, the primary means of reporting NAEP results are achievement 

levels, which are standards for Basic, Proficient, and Advanced performance. These levels describe what students should know and be 

able to do for each grade and subject that NAEP assesses. 

These scale scores and achievement levels are developed independently for each subject; thus, the results cannot be compared 

across subjects. NAEP also reports scale scores and achievement 

levels for subgroups of students, as well as by background factors 

that relate to student achievement. 

NAGB defines the achievement levels as follows: 

Basic: Students at this level demonstrate partial mastery of 

prerequisite knowledge and skills that are fundamental for 

proficient work at each grade.

Proficient: Students at this level demonstrate solid academic 

performance for each grade assessed. These students demonstrate competency over challenging subject matter, including 

subject-matter knowledge, application of such knowledge to 

real-world situations, and analytical skills appropriate to the 

subject matter.

Advanced: Students at this level demonstrate superior 

performance.

What is the 2006 NAEP Economics Assessment?

In December 2001, Congress passed the No Child Left Behind 

Act. President Bush signed the bill into law in January 2002. This 

Act requires that NAEP “to the extent time and resources allow...

conduct additional national assessments...in regularly scheduled 

intervals in additional subject matter, including writing, science, 

history, geography, civics, economics, foreign languages, and arts.” 

This Act replaces the Goals 2000 legislation, which actually set in 

motion the preparation of the 2006 NAEP Economics Assessment. 

NAGB had originally targeted 2005 for the first NAEP Economics Assessment. Following the passage of the No Child Left Behind 

Act of 2001, NAGB modified its NAEP assessment schedule to 
comply with provisions in the law. At its March 2002 meeting, 

NAGB designated 2006 for the NAEP Economics Assessment. As 

a result, in spring 2006, a national sample of high school seniors 

from across the country, with various backgrounds and in public and 

private schools, will, for the first time, be able to demonstrate on a 

nationally administered assessment what they know about economics.

What is the NAEP Economics Framework 

Development Project?

In September 2001, NAGB awarded a contract to the American 

Institutes for Research (AIR) to conduct the Economics project. 

AIR collaborated with the National Council on Economic Education (NCEE) and the Council of Chief State School Officers 

(CCSSO) to develop recommendations to NAGB for the 2006 

Economics Assessment. Specifically, the Project Management Team 

directed the work of the Steering Committee, the Planning Committee, and the Technical Advisory Panel to make recommendations to 

NAGB on the following:

● a framework for the assessment

● assessment and item specifications based on the framework

● background variables to be collected from students, teachers, 

and school administrators

The Steering Committee consisted of 15 members, the Planning 

Committee had 19 members, and the Technical Advisory Committee had 4 members. The Steering and Planning Committees 

included secondary teachers and administrators, college and university teachers, representatives of professional education organizations and the private sector, policymakers, and members of the 

public. The Steering Committee met three times to set the overall 

guidelines for the project and to act in an advisory capacity, review 

materials, and recommend revisions and changes. The Planning 

Committee met five times and designed the framework, the specifications, and the background variables document with the assistance 

of the Technical Advisory Committee and the Project Management 

Team.

In addition to the members of the committees and the Project 

Management Team, hundreds of stakeholders—educators, business and labor representatives, students, and policymakers­—were 
involved in the evolution of the Framework Development Project 

through their participation in the national review forums and other 

reviews of the documents. Members of each project committee and 

the Project Management Team are listed in Appendix B. 

The timeline for the project follows:

Fall 2001

NAGB awarded the Economics Contract and delivered 

its charge to the project Steering Committee. Project 

consultants developed an Issues Paper to guide committee 

discussions.

Fall 2001 Through Winter 2002 

The Steering and Planning Committees met several times. 

The Steering Committee developed the “Charge” to guide 

the work of the Planning Committee. The Planning Committee developed the framework and specifications for the 

assessment.

April and May 2002

The framework was made available for national review.

Summer 2002

Full recommendations for the assessment framework, 

specifications, and background questions were prepared 

and submitted to NAGB.

August 2002

NAGB took final action on recommendations regarding 

the 2006 NAEP Economics Assessment (on the Framework, Specifications, and Background Variables).
Chapter 2

Economic Education

Economic literacy is essential for individuals to function effectively in their own personal lives, as participants in an increasingly connected world economy, and as citizens. It is 

difficult to function as a productive member of society—as a worker, a saver, an investor, a consumer, or an active citizen—without 

some knowledge of economic concepts and ideas and an ability to 

apply basic economic analysis to solve everyday problems.

The core of economics taught in elementary, secondary, and college classrooms is designed to enable students to understand how 

economies function and to apply economic analysis in their own 

lives by helping them interpret the daily news; make personal decisions about spending, working, saving, and investing; and explore 

social and economic challenges and policies. Economic understanding is, more than anything else, the ability to use a set of principles 

to better understand how the world around us works.

Instruction in economics in high school is important for high 

school graduates who go on to college; it is especially important for 

those high school graduates who do not attend college. Among the 

63 percent of high school graduates who go to college, only 40 percent take a college economics course (Walstad, 2001). This percentage means that 75 percent of all high school graduates will not take 

an economics course unless they do so in high school.

What is the current state of economic education in the 

United States?

Economics as a part of the elementary, middle, and secondary 

school curricula has expanded at a steady pace throughout the past 

40 years. Part of the impetus has been the increasing awareness of 

the importance of economic understanding by teachers and curriculum planners and the creation and expansion of university teacher 

training programs for in-service teachers. A movement to mandate 

secondary economics courses for graduation spread rapidly during 
the 1970s and 1980s. The efforts of national education organizations and economic institutions such as the National Council on 

Economic Education, the Federal Reserve Banks, Junior Achievement, and the Foundation for Teaching Economics resulted in a 

further expansion of economics in the curriculum, the development 

of new materials, and teacher training.

In today’s elementary and secondary classrooms, economics 

concepts are being integrated into traditional mathematics, reading, and social studies lessons. In some secondary schools, not only 

are these concepts integrated across the curriculum, but students 

are given the opportunity, and sometimes are required, to take a 

one-semester course in economics. In 1998, the National Center 

for Education Statistics (NCES) found that slightly more than 1.3

million high school seniors, or 46 percent of the total number of 

students, had actually taken a course labeled “economics” (NCES, 

2001). Other estimates of the number of students taking economics 

are lower. For example, Walstad (2001) estimated that only 41–43

percent of high school seniors have taken an economics course.

Forty-eight states and the District of Columbia include economics as part of state standards or curriculum guidelines (Dempsey, 

2000). That is a significant increase even over survey results from 2 

years earlier. However, only 36 states require the implementation of 

economic standards (up from 28 states in 1998). A total of 22 states 

test students on economic knowledge; 9 other states are currently 

developing tests. Thirteen states, including five with very large 

student populations (California, Florida, Georgia, New York, and 

Texas) require economics prior to graduation. Four others require 

students to take a course with economics included in the course 

content. An additional 10 percent of high school students take 

courses such as American Government and Economics that may 

include substantial economics content (NCES, 2001).

The high school curriculum is crowded. Even in the states that 

require an economics course for graduation, the time devoted to 

economics is limited, and approximately half of those states’ assessments do not include economics (Dempsey, 2000). Students do have 

opportunities to learn economic concepts and study institutions in 

U.S. and world history, civics and government, social studies, literature, mathematics, and even science courses. The content standards 

that have been developed in U.S. and world history, social studies, 

civics, and geography do include economic concepts, but they are 

limited in number and scope (Buckles and Watts, 1997).
The desired content and goals of economic education in elementary and middle schools and in secondary economics courses have 

been explored by teachers, economic educators, and economists. 

Beginning with the Framework report in the 1970s (Hansen et al., 

1977), the Framework revision in the 1980s (Saunders et al., 1984), 

and the Scope and Sequence work in the late 1980s (Gilliard et al., 

1988), professionals with a wide variety of backgrounds have come 

together to reach agreements about reasonable expectations of economic understanding for secondary school graduates.

Economics was included as one of the subjects that Congress in 

1994 set out for competency in the Goals 2000: Educate America 

Act. 

By the year 2000, all students will leave grades 4, 8, and 

12 having demonstrated competency over challenging subject matter including English, mathematics, science, foreign 

languages, civics and government, economics, arts, history, 

and geography, and every school in America will ensure that 

all students learn to use their minds well, so they may be 

prepared for responsible citizenship, further learning, and 

productive employment in our Nation’s modern economy. 

Following that designation, the National Council on Economics 

Education developed a coalition of organizations and individuals to 

write voluntary content standards in economics. A writing committee consisting of nationally recognized economic educators and 

teachers and a review committee of distinguished economists were 

established and began work. A variety of organizations, teachers, 

and economists were consulted throughout the process. The result 

was the Voluntary National Content Standards in Economics (National Council on Economic Education, 1997).

Additional efforts have gone into the creation of research and 

evaluation instruments in economic education for elementary, 

middle, and secondary schools (Walstad, 2001). The Advanced 

Placement Economics examinations have been created for the Advanced Placement economics courses taught in secondary schools. 

Professional groups also have developed guides for secondaryschool economics content. Textbooks with economics content based 

on standard practice in a large number of states have been published 

and are widely used. In each instance, goals for economic understanding have been established. The results of all these previous 
10

efforts provide useful guidelines for understanding what is important in the elementary and secondary economics experience. 

There is significant variation even among what are described as 

economics courses in the nation’s high schools (Dempsey, 2000). 

The high school economics experience ranges from Advanced 

Placement Economics, which is equivalent to a college-level principles of economics course, to courses in consumer economics, 

personal finance, business principles, or, in some cases, studies of 

comparative economic systems. Some of these courses include very 

little economics. 

The challenge of defining the depth and breadth of content in the 

NAEP (National Assessment of Educational Progress) Economics 

Assessment is further complicated because many students’ exposure 

to economics is limited to the instruction they receive as part of a 

class other than economics or what they learn from their parents, 

the media, or their own employment.

Describing the typical economics curriculum that a student has 

encountered is not possible. Some students have never had a course 

and may not even recognize that economics concepts and ideas 

have been infused into their other courses. Others may overestimate 

their degree of economic understanding gained from those courses. 

A significant number have had a one-semester course in economics, 

and a small number of students have had a yearlong course. So how 

can a fair and rigorous NAEP assessment be created that measures 

what students do know in economics and what they should know in 

grade 12? This was the question faced by a broad-based group of 

economics educators, policymakers, and representatives of business and finance assembled as the first Steering Committee for the 

NAEP Economics Assessment.
11

Chapter 3

Content

The Steering Committee began its work by developing a 

Charge that defined the scope of the assessment and provided 

guidelines for the content to be assessed, that is, what grade 

12 students should know and be able to do. A copy of that Charge 

can be found in Appendix C. The Planning Committee, composed 

of knowledgeable and experienced economics educators, began 

its work with the Charge given by the Steering Committee. On the 

basis of ensuing discussions, the Planning Committee developed the 

following definition of economic literacy to guide the specification 

of the appropriate content and skills:

Economic literacy is the ability to identify, analyze, and evaluate 

the consequences of individual decisions and public policy. Economic literacy includes an understanding of:

● the fundamental constraints imposed by limited resources, the 

resulting choices people have to make, and the trade-offs they 

face;

● how economies and markets work and how people function 

within them;

● the benefits and costs of economic interaction and interdependence among people and nations.

Economic literacy also includes having the skills that allow 

people to function effectively in their roles as consumers, producers, 

savers, investors, and responsible citizens. These skills include economic reasoning, problem solving, decisionmaking, and the ability 

to analyze real-life situations.

Following the request in the Steering Committee Charge, the 

Planning Committee used the Voluntary National Content Standards 

in Economics as a basis on which to build. The Planning Committee 

selected benchmarks under each of the proposed 20 standards and 

added a benchmark on the time value of money.

The standards include the principles of economics agreed on 

and viewed as essential by most economists, followed by the 
12

benchmarks that give more detail about what grade 12 students 

should know and be able to do with regard to each standard. 

Students have to understand basic economic principles before they 

can reason logically about the economic issues that affect their lives 

and evaluate disagreements over such matters as the proper role of 

the government in the economy. 

The writers of the Voluntary National Content Standards note, 

“Almost all economic principles are conditioned on assumptions.” 

To include all the assumptions with each standard and benchmark 

would detract from the effectiveness and importance of the standards and benchmarks themselves. So, in some cases, without 

specifying all the required assumptions, the standards and benchmarks imply as always true some principles that are widely agreed 

to be true in most, but not necessarily all, circumstances (National 

Council on Economic Education, 1997). In other cases, the standards explain the implications of different assumptions. 

The economics content is necessary for the understanding and 

the analysis of a wide variety of applications, including those involving individual and household choices, personal finance issues, 

business and entrepreneurial decisions, and public policy. For that 

reason, the project committees recommend that the understanding 

of and the ability to use most of the economic concepts be assessed 

within the contexts of specific applications. The three contextual 

areas specified by the committee are an individual and household 

context, a business context, and a government or public context.

For reporting purposes, the project committees allocated the 

content among three content areas. Approximately 45 percent of 

the assessment will cover content and skills included in the Market 

Economy; 40 percent in the National Economy; and 15 percent in 

the International Economy. The recommended percentages refer 

to the amount of time that students will spend answering items in 

each content area. The project committees recommend that the assessment results be reported as a total score and as scores for each 

content area.
13

A summary of the standards included in each category is shown 

in table 1. The numbers in parentheses after the standards match 

the numbering system used in the Voluntary National Content 

Standards. Four standards (markets; investment, productivity, and 

growth; the economic role for government; and government decisionmaking) are listed in more than one content area.

A brief introduction to each of the three content areas presents 

an overview of the concepts in the Market Economy, the National 

Economy, and the International Economy. The standards and 

benchmarks that follow each content area provide a detailed outline 

of the specific economic topics that the National Assessment of 

Educational Progress (NAEP) will assess at grade 12. 

The Market Economy

The core content in this category includes the relevance of limited resources, how individuals and institutions make and evaluate 

decisions, the role of incentives, how buyers and sellers interact to 

create markets, how markets allocate resources, and the economic 

role of government in a market economy. 

Economically literate grade 12 students are able to identify what 

tradeoffs they face—what they gain and what they give up when 

Content Categories

(Percent of time spent)

National

Economy 40%

Market

Economy 45%

International

Economy

15%
1

4

Table 1. Distribution of standards across content areas

Choices and costs (1) Resource allocation (3) Effective decisionmaking (2) Money (11) Incentives (4) Interest rates (12) Markets (7) Investment, productivity, Prices (8) and growth (15) Competition (9) Economic role for Institutions (10) government (16) Income (13) Government decisionmaking (17)Entrepreneurs (14) Gross domestic product (18) Investment, productivity, and growth (15) Unemployment and inflation (19)Economic role for government (16) Fiscal and monetary policies (20)Government decisionmaking (17)

The National

Economy

The Market 

Economy

Note: Numbers in parentheses match the numbering system used in the Voluntary NaEconomics.
15

they consider alternatives and make choices. Doing so informs their 

decisions, helping them choose alternatives that promote their goals 

as consumers, producers, savers, investors, and citizens. They can 

identify incentives that affect people’s behavior and explain how 

incentives affect their own behavior.

They are able to describe how the interaction of buyers and sellers in markets influences prices and output levels. They are able to 

predict how prices change when there is either a product shortage 

or a surplus of the product. They can explain how changes in the 

supply and demand conditions and in the level of competition in 

different markets can affect prices and output levels.

Students who understand and are able to use economics can describe the likely effects of plans for education, training, and career 

options on future earnings and can identify the risks, returns, and 

other characteristics of entrepreneurship that bear on its attractiveness as a career. They can predict the consequences, the risks, and 

the potential returns of investment decisions made by individuals, 

businesses, and governments. 

Students are able to describe the roles of economic institutions, 

such as legal systems, private property, labor unions, and corporations. They can identify and evaluate the benefits and costs of alternative public policies, assess who enjoys the benefits and who bears 

the costs, and explain why government policies exist.

Content in the Market Economy includes much of what is traditionally described as microeconomics.

Standard 1 Choices and costs

Productive resources are limited. Therefore, people cannot have 

all the goods and services they want; as a result, they must choose 

some things and give up others.

1.1.1 The opportunity cost of a choice is the value of the best 

alternative given up.

1.1.2 Scarcity is the condition of not being able to have all the 

goods and services one wants. It exists because human 

wants for goods and services exceed the quantity of 

goods and services that can be produced from all available resources.
16

1.1.3 Choices involve trading off the expected value of one opportunity against the expected value of its best alternative.

1.1.4 Choices made by individuals, firms, or government officials often have long-run unintended consequences that 

can partially or entirely offset the initial effects of their 

decisions.

1.1.5 Productive resources are the natural resources, human 

resources, and capital goods available to make goods and 

services.

Standard 2 Effective decisionmaking

Effective decisionmaking requires comparing the additional costs 

of alternatives with the additional benefits. Most choices involve 

doing a little more or a little less of something: few choices are “all 

or nothing” decisions. 

1.2.1 Marginal benefit is the change in total benefit resulting 

from an action. Marginal cost is the change in total cost 

resulting from an action.

1.2.2 As long as the marginal benefit of an activity exceeds 

the marginal cost, people are better off doing more of 

it; when the marginal cost exceeds the marginal benefit, 

they are better off doing less of it. 

1.2.3 To determine the best level of consumption of a product, 

people must compare the additional benefits with the additional costs of consuming a little more or a little less.

1.2.4 To produce the profit-maximizing level of output and 

hire the optimal number of workers and other resources, 

producers must compare the marginal benefits and marginal costs of producing a little more with the marginal 

benefits and marginal costs of producing a little less.

1.2.5 To determine the optimal level of a public policy program, voters and government officials must compare the 

marginal benefit and marginal cost of providing a little 

more or a little less of the program’s services.
17

1.2.6 The time value of money refers to the relationship 

between the length of time money is invested and its 

growth due to the compounding of gains.

Standard 4 Incentives

People respond to positive and negative incentives.

1.4.1 Changes in incentives cause people to change their behavior in predictable ways.

1.4.2 Acting as consumers, producers, workers, savers, investors, and citizens, people respond to incentives in order 

to allocate their scarce resources in ways that provide the 

highest possible returns to them.

Standard 7 Markets

Markets exist when buyers and sellers interact. This interaction 

determines market prices and thereby allocates scarce goods and 

services.

1.7.1 A market exists whenever buyers and sellers exchange 

goods and services.

1.7.2 Market prices are determined through the buying and 

selling decisions made by buyers and sellers.

1.7.3 The equilibrium price of a good or a service is the 

one price at which quantity supplied equals quantity 

demanded.

1.7.4 If a price is above the equilibrium price, it will fall, 

causing sellers to produce less and buyers to purchase 

more; if it is below the equilibrium price, the price will 

rise, causing sellers to produce more and buyers to 

purchase less.

1.7.5 Shortages of a product usually result in price increases 

in a market economy; surpluses usually result in price 

decreases.
18

Standard 8 Prices

Prices send signals and provide incentives to buyers and sellers. 

When supply or demand changes, market prices adjust, affecting 

incentives. 

1.8.1 An increase in the price of a good or a service encourages people to look for substitutes, causing the quantity 

demanded to decrease, and vice versa. This relationship 

between price and quantity demanded, known as the law 

of demand, exists as long as other factors influencing 

demand do not change.

1.8.2 An increase in the price of a good or a service enables 

producers to cover higher per-unit costs, causing the 

quantity supplied to increase, and vice versa. This relationship between price and quantity supplied is normally 

true as long as other factors influencing the costs of 

production and supply do not change.

1.8.3 Demand for a product changes when there is a change 

in consumers’ incomes or preferences, in the prices of 

related goods or services, or in the number of consumers 

in a market.

1.8.4 Supply of a product changes when there are changes in 

the prices of the productive resources used to make the 

good or the service, the technology used to make the 

good or the service, the profit opportunities available 

to producers by selling other goods or services, or the 

number of sellers in a market.

1.8.5 Elasticity describes the degree to which buyers and sellers respond to price changes. 

1.8.6 Changes in supply or demand cause relative prices to 

change; in turn, buyers and sellers adjust their purchase 

and sales decisions.

1.8.7 Government-enforced price ceilings set below the equilibrium price and government-enforced price floors set 

above the equilibrium price distort price signals and incentives to producers and consumers. The price ceilings 
19

cause persistent shortages, whereas the price floors cause 

persistent surpluses.

Standard 9 Competition

Competition among sellers lowers costs and prices and encourages producers to produce more of what consumers are willing and 

able to buy. Competition among buyers increases prices and allocates goods and services to those people who are willing and able to 

pay the most for them. 

1.9.1 The level of competition in an industry is affected by the 

ease with which new producers can enter the industry 

and by consumers’ information about the availability, 

price, and quantity of substitute goods and services.

1.9.2 The pursuit of self-interest in competitive markets generally leads to choices and behavior that also promote the 

national level of economic well-being.

1.9.3 When competition is limited, producers are able to gain 

more control of the market and the prices they set.

1.9.4 The introduction of new products and production methods by entrepreneurs is an important form of competition 

and is a source of technological progress and economic 

growth.

Standard 10 Institutions

Institutions evolve in market economies to help individuals and 

groups accomplish their goals. Banks, labor unions, corporations, 

legal systems, and not-for-profit organizations are examples of 

important institutions. Another institution, clearly defined and wellenforced property rights, is essential to a market economy.

1.10.1 Through the process of collective bargaining with employers, labor unions represent some workers in negotiations involving wages, fringe benefits, and work rules.

1.10.2 Incorporation allows firms to accumulate sufficient 

financial capital to make large-scale investments and 

achieve economies of scale. Incorporation also reduces 

the risk to investors by limiting stockholders’ liability to 

their share of ownership of the corporation.
20

1.10.3 Banks and other financial institutions channel funds from 

savers to borrowers and investors.

1.10.4 Property rights, contract enforcement, standards for 

weights and measures, and liability rules affect incentives for people to produce and exchange goods and 

services.

Standard 13 Income

Income for most people is determined by the market value of the 

productive resources they sell. What workers earn depends, primarily, on the market value of what they produce and how much they 

add to its production. 

1.13.1 Employers are willing to pay wages and salaries to workers because they expect to sell the goods and services 

those workers produce at prices high enough to cover the 

wages and salaries and all the other costs of production.

1.13.2 More productive workers are likely to be of greater value 

to employers and earn higher wages than less productive 

workers.

1.13.3 People’s incomes, in part, reflect choices they have made 

about education, training, skill development, and careers. 

People with few marketable skills are more likely to be 

poor. 

1.13.4 Changes in the prices for productive resources affect the 

incomes of the owners of those productive resources and 

the combination of those resources used by firms.

1.13.5 Changes in demand for specific goods and services often 

affect the incomes of the workers who make those goods 

and services. 

Standard 14 Entrepreneurs

Entrepreneurs are people who take calculated risks in organizing productive resources to make goods and services. Profit is an 

important incentive that leads entrepreneurs to accept the risks of 

business failure. 
21

1.14.1 Entrepreneurs are individuals who take calculated risks 

in order to start new businesses and develop innovative 

products and processes. 

1.14.2 Entrepreneurs accept the risk of organizing resources to 

produce goods and services, and they hope to earn profits.

1.14.3 Entrepreneurs and other sellers earn profits when buyers purchase the products they sell at prices high enough 

to cover the costs of production; they incur losses when 

buyers do not purchase the products they sell at prices 

high enough to cover the costs of production.

Standard 15 Investment, productivity, and growth

Investment in factories, machinery, and new technology and in 

the health, education, and training of people can raise future standards of living.

1.15.1 Investments in physical and human capital can increase 

productivity, but such investments entail opportunity 

costs and economics risks. Investing in new physical or 

human capital involves a tradeoff of lower current consumption in anticipation of greater future production and 

consumption.

1.15.2 Workers can improve their productivity by improving 

their human capital and by using physical capital such as 

tools and machinery. 

Standard 16 Economic role for government

Government has an economic role in a market economy whenever the benefits of a government policy outweigh its costs. Governments often provide national defense, address environmental 

concerns, define and protect property rights, and through regulation 

attempt to make markets more competitive. Most government policies also redistribute income. 

1.16.1 Markets do not allocate resources effectively if (1) property rights are not clearly defined or enforced, (2) externalities (spillover effects) affecting large numbers of 

people are associated with the production or consumption of a product, or (3) markets are not competitive.
22

1.16.2 An important role for government in the economy is to 

define, establish, and enforce property rights. A property 

right to a good or a service includes the right to exclude 

others from using the good or the service and the right 

to transfer the ownership or the use of the resource to 

others.

1.16.3 When a price fails to reflect all the benefits of a product, too little of the product is produced and consumed. 

When a price fails to reflect all the costs of a product, 

too much of it is produced and consumed. Government 

can use subsidies to help correct for insufficient output; 

it can use taxes to help correct for excessive output; or it 

can regulate output directly to help correct for over- or 

underproduction or for over- or underconsumption of a 

product. 

1.16.4 Externalities exist when some of the costs and the benefits associated with production and consumption fall on 

someone other than the producers or the consumers of 

the product.

1.16.5 Governments provide an alternative method to markets 

for supplying goods and services when markets fail and 

when it appears that the benefits to society of doing so 

outweigh the costs to society. 

Standard 17 Government decisionmaking

The costs of government policies sometimes exceed the benefits. 

This may occur because social goals other than economic efficiency 

are being pursued; because of incentives facing voters, government 

officials, and government employees; or because of actions pursued 

through government and legal channels by special-interest groups 

that can impose costs on the general public.

1.17.1 Price controls are often advocated by special-interest 

groups. Price controls reduce the quantity of goods and 

services consumed or produced, thus depriving consumers of some goods and services whose value would 

exceed their cost.
23

The National Economy

The National Economy content area includes the concepts, terminology, and data used to identify and describe inflation, unemployment, output, and growth; the factors that cause changes in those 

conditions; the role of money and interest rates in an economy; and 

the mechanics and the appropriate uses of Federal Reserve monetary policies and federal government fiscal policies. 

Economically literate grade 12 students are able to describe how 

economies use different systems of allocating goods and services 

and can compare the benefits and the costs of different methods. 

Students can identify the various economic roles that governments 

play as providers of goods and services.

Students can explain the role of money in an economy and identify interest rates as the prices of borrowing or lending money. They 

can give examples of situations in which they might pay or receive 

interest and how they would react to changes in interest rates. 

Students can identify the effects of technological change and 

investment on gross domestic product. They are able to explain 

the function of taxes and how taxes may redistribute income. They 

can interpret media reports about current economic conditions and 

explain how these conditions can influence decisions made by consumers, producers, and governments. 

Students are able to make informed decisions by anticipating the 

consequences of inflation and unemployment. They can explain the 

macroeconomic policies of the federal government and the Federal 

Reserve System, under what conditions the policy decisions are 

likely to change, and the effects of those changes on themselves and 

others. 

Content in the National Economy includes much of what is traditionally described as macroeconomics.

Standard 3 Resource allocation methods

Different methods can be used to allocate goods and services. 

People acting individually or collectively through government must 

choose which methods to use to allocate different kinds of goods 

and services.
24

2.3.1 People in all economies must answer three basic questions: What goods and services will be produced? How 

will these goods and services be produced? Who will 

consume them?

2.3.2 National economies vary in the extent to which they rely 

on government directives (central planning) and signals 

from private markets to allocate scarce goods, services, 

and productive resources.

2.3.3 A comparison of the benefits and the costs of different 

allocation methods in order to choose the method that 

is most appropriate for a specific problem can result in 

more effective allocations and a more effective overall 

allocation system.

Standard 11 Money

Money makes it easier to trade, borrow, save, invest, and compare the value of goods and services.

2.11.1 Money is anything widely accepted as final payment for 

goods and services.

2.11.2 The basic money supply in the United States consists of 

currency, coins, and checking account deposits.

2.11.3 In many economies, when banks make loans, the money 

supply increases; when loans are paid off, the money 

supply decreases.

Standard 12 Interest rates

Interest rates, adjusted for inflation, rise and fall to balance the 

amount saved with the amount borrowed, thus affecting the allocation of scarce resources between present and future uses. 

2.12.1 An interest rate is the price of money that is borrowed or 

saved.

2.12.2 Like other prices, interest rates are determined by the 

forces of supply and demand.

2.12.3 The real interest rate is the nominal or current market 

interest rate minus the expected rate of inflation.
25

2.12.4 Higher real interest rates provide incentives for people to 

save more and to borrow less. Lower real interest rates 

provide incentives for people to save less and to borrow 

more.

2.12.5 Real interest rates usually are positive because people 

must be compensated for deferring the use of resources 

from the present into the future.

2.12.6 Riskier loans command higher interest rates than do 

safer loans because of the greater chance of default on 

the repayment of risky loans.

Standard 15 Investment, productivity, and growth

Investment in factories, machinery, and new technology and in 

the health, education, and training of people can raise future standards of living. 

2.15.1 Productivity is measured by dividing output (goods and 

services) by the number of inputs used to produce the 

output. A change in productivity is a change in output 

relative to input.

2.15.2 The rate of productivity increase in an economy is 

strongly affected by the incentives that reward successful 

innovation and investments in research and development 

and in physical and human capital.

2.15.3 Increases in productivity result from advances in technology and increases in physical and human capital.

2.15.4 Economic growth is a sustained rise in a nation’s production of goods and services. It results from investments in 

human and physical capital, research and development, 

technological change, and improved institutional arrangements and incentives. 

2.15.5 Economic growth creates new employment and profit 

opportunities in some industries, but growth reduces opportunity in others.
26

Standard 16 Economic role for government

Government has an economic role in a market economy when 

the benefits of a government policy outweigh its costs. Governments often provide national defense, address environmental 

concerns, define and protect property rights, and attempt to make 

markets more competitive through regulation. Most government 

policies also redistribute income. 

2.16.1 Governments pay for the goods and services they use or 

provide by taxing or borrowing from people. 

2.16.2 Governments often redistribute income directly in 

response to individuals or interest groups who are not 

satisfied with the income distribution resulting from markets; governments also redistribute income indirectly as 

side effects of other government actions that affect prices 

or output levels for various goods and services. 

2.16.3 Most federal tax revenue comes from personal income 

and payroll taxes. Payments to social security recipients, 

the costs of national defense, medical expenditures, and 

interest payments on the national debt constitute the bulk 

of federal government spending.

2.16.4 Different tax structures affect consumers and producers 

differently.

Standard 17 Government decisionmaking

The costs of government policies may exceed the benefits. This 

may occur because social goals other than economic efficiency are 

being pursued; because of incentives facing voters, government 

officials, and government employees; or because of actions pursued 

through government and legal channels by special-interest groups 

that can impose costs on the general public.

2.17.1 Incentives exist for political leaders to favor programs 

that entail immediate benefits and future costs; few 

incentives favor programs promising immediate costs 

and future benefits, even though the latter programs are 

sometimes economically more effective than the former 

programs.
27

Standard 18 Gross domestic product 

A nation’s overall levels of income, employment, and prices are 

determined by the interaction of spending and production decisions 

made by all households, firms, government agencies, and others in 

the economy. 

2.18.1 One person’s spending is other people’s income. When 

consumers make purchases, goods and services are 

transferred from businesses to households in exchange 

for money payments. That money is used in turn by 

businesses to pay for natural resources, human resources, 

and capital goods and to pay taxes. 

2.18.2 Gross domestic product (GDP) is a basic measure of 

a nation’s economic output and income. It is the total 

market value, measured in dollars, of all final goods and 

services produced in the economy in 1 year.

2.18.3 Nominal GDP is measured in current dollars; thus, an 

increase in GDP may reflect not only increases in the 

production of goods and services, but also increases in 

prices. GDP adjusted for price changes is called real 

GDP. Real GDP per capita is a measure that permits 

comparisons of material living standards over time and 

among people in different nations.

2.18.4 The potential level of real GDP for a nation is determined by the quantity and quality of its natural resources, the size and skills of its labor force, and the size and 

quality of its stock of capital resources.

2.18.5 When desired expenditures for consumption, investment, 

government spending, and net exports are greater than 

the value of a nation’s output of final goods and services, 

GDP rises and inflation occurs and/or employment rises. 

When desired expenditures for consumption, investment, 

government spending, and net exports are less than the 

value of a nation’s output of final goods and services, 

GDP decreases and inflation and/or employment decreases.
28

Standard 19 Unemployment and inflation

Unemployment imposes costs on individuals and on nations. Unexpected inflation imposes costs on many people and benefits some 

others because it arbitrarily redistributes purchasing power. Inflation 

can reduce the rate of growth of national living standards because 

individuals and organizations use resources to protect themselves 

against the uncertainty of future prices. 

2.19.1 The unemployment rate is the percentage of the labor 

force that is willing and able to work, does not currently 

have a job, and is actively looking for work.

2.19.2 Unemployment rates differ for people of different ages, 

races, and gender. This reflects differences in work 

experience, education, training, and skills, as well as 

discrimination.

2.19.3 Unemployment can be caused by people changing jobs, 

by seasonal fluctuations in demand, by changes in the 

skills needed by employers, or by cyclical fluctuations in 

the level of national spending.

2.19.4 Unemployment has costs for society as well as for individuals. When unemployment is substantial, the economy will not produce as much as it could. 

2.19.5 Inflation is an increase in the general level of prices. It 

reduces the value of money. 

2.19.6 When people’s incomes increase more slowly than the 

inflation rate, their purchasing power declines.

2.19.7 The consumer price index (CPI) is the most commonly 

used measure of price-level changes. It can be used to 

compare the price level in 1 year with price levels in 

earlier or later periods.

2.19.8 The costs of inflation are different for different groups 

of people. Unexpected inflation hurts savers and people 

on fixed incomes; it helps people who have borrowed 

money at fixed rates of interest.
29

Standard 20 Fiscal and monetary policies

Federal government budgetary policy and the Federal Reserve 

System’s monetary policy influence the overall levels of employment, output, and prices.

2.20.1 Fiscal policies are decisions to change spending and tax 

levels by the federal government. These decisions are adopted to influence national levels of output, employment, 

and prices.

2.20.2 In the short run, increasing federal spending and/or reducing taxes can promote more employment and output, 

but these policies also put upward pressure on the price 

level and interest rates. Decreased federal spending and/

or increased taxes tend to lower price levels and interest 

rates, but they reduce employment and output levels in 

the short run.

2.20.3 In the long run, the interest rate effects of fiscal policies 

lead to changes in private investment spending by businesses and individuals that partially, if not entirely, offset 

the output and employment effects of fiscal policy.

2.20.4 The federal government’s annual budget is balanced 

when its revenues from taxes and user fees equal its 

expenditures. The government runs a budget deficit when 

its expenditures exceed its revenues. The government 

runs a surplus when its revenues exceed its expenditures.

2.20.5 When the government runs a budget deficit, it must borrow from individuals, corporations, or financial institutions to finance that deficit.

2.20.6 The national debt is the total amount of money the federal government owes. This is the sum of all its past annual deficits and surpluses. The government pays interest 

on the money it borrows to finance the national debt.

2.20.7 In the long run, inflation results from increases in a 

nation’s money supply that exceeds increases in its output of goods and services.
30

2.20.8 Monetary policies are decisions by the Federal Reserve 

System that lead to changes in the supply of money and 

the availability of credit. Changes in the money supply 

can influence overall levels of spending, employment, 

and prices in the economy by inducing changes in interest rates charged for credit and by affecting the levels of 

personal and business investment spending.

2.20.9 The major monetary policy tool that the Federal Reserve 

System uses is open market purchases or sales of government securities. Other policy tools used by the Federal 

Reserve System include increasing or decreasing the discount rate charged on loans it makes to banks (and other 

depository institutions) and raising or lowering reserve 

requirements for those same financial institutions.

The International Economy

Content in this category includes the reasons for individuals and 

businesses to specialize and trade; the rationale for specialization 

and trade across international borders; and the comparison of the 

benefits and costs of that specialization and resulting trade for consumers, producers, and governments. 

Economically literate grade 12 students are able to explain how 

voluntary exchange, whether in a domestic or an international 

market, is undertaken because both parties in the exchange expect 

to benefit. Students can explain how they benefit themselves and 

others by developing special skills and strengths. They are able to 

negotiate exchanges and identify the gains to themselves and others. 

They can compare the benefits and costs of policies that alter 

trade barriers between nations, such as tariffs and quotas. In addition, they are able to identify who bears those costs and who 

receives the benefits. 

They are able to explain why exchange rates change and can 

predict the effects of those changes on themselves and others. They 

can explain how investment, technological change, education, and 

incentive structures contribute to differences in economic growth 

and standards of living among countries.
31

Standard 5 Voluntary exchange

Voluntary exchange occurs only when all participating parties 

expect to gain. This is true for trade among individuals or organizations within a nation and among individuals or organizations in 

different nations. 

3.5.1 Voluntary exchange of goods and services takes place 

internationally because people or organizations expect to 

be better off. 

3.5.2 When imports are restricted by public policies, consumers pay higher prices and job opportunities and profits in 

exporting firms decrease.

Standard 6 Benefits of trade

When individuals, regions, and nations specialize in what they 

can produce at the lowest cost and then trade with others, both production and consumption increase. 

3.6.1 Like trade among individuals within one country, international trade promotes specialization and division of 

labor and increases the productivity of labor, output, and 

consumption.

3.6.2 Greater specialization leads to increased interdependence 

among producers and consumers. As a result of growing international economic interdependence, economic 

conditions and policies in one nation increasingly affect 

economic conditions and policies in other nations.

3.6.3 Comparative advantage is the primary motivating factor 

driving international trade. 

3.6.4 Individuals and nations have a comparative advantage in 

the production of goods or services if they can produce a 

product at a lower opportunity cost than other individuals or nations.

3.6.5 Comparative advantages change over time due to changes in factors such as abundance of resources, resource 

prices, and international institutions. 
32

Standard 7 Markets

Markets exist when buyers and sellers interact. This interaction 

determines market prices and thereby allocates scarce goods and 

services.

3.7.1 An exchange rate is the price of one nation’s currency 

in terms of another nation’s currency. Like other prices, 

exchange rates are determined by the interactions of 

supply and demand. Foreign exchange markets allocate 

international currencies. 

3.7.2 When exchange rates fluctuate, the prices of exports and 

imports change, and some groups gain while others lose 

in each country.

Standard 15 Investment, productivity, and growth

Investment in factories, machinery, and new technology and in 

the health, education, and training of people can raise future standards of living. 

3.15.1 Economic growth varies across countries because 

of differences in human and physical capital investments, technologies, and institutional arrangements 

and incentives. 

3.15.2 Economic growth has been the primary vehicle for alleviating poverty and raising standards of living.

Standard 17 Government decisionmaking

The costs of government policies may exceed the benefits. This 

may occur because social goals other than economic efficiency are 

being pursued; because of incentives facing voters, government 

officials, and government employees; or because of actions pursued 

through government and legal channels by special-interest groups 

that can impose costs on the general public.

3.17.1 Although barriers to international trade usually impose 

more costs than benefits, they are often advocated by 

people and groups who expect to gain substantially from 

them. Because the costs of these barriers are typically 
33

spread over a large number of people, each of whom 

pays only a little and may not recognize the cost, policies 

supporting trade barriers are often adopted through the 

political process.
35

Chapter 4

Characteristics of the Assessment

The project committees offer the following recommendations 

to guide the development of the assessment instruments. 

These recommendations include guidelines for:

● cognitive skills to be used in answering items; 

● appropriate contexts and applications; 

● graphing, table and chart interpretation, and calculation skills 

to be expected; 

● the types of items to be included; 

● the use of economic terminology; 

● preliminary descriptions of achievement levels.

Cognitive Categories

The project committees have defined three cognitive categories 

to use in designing the assessment instrument: Knowing, Applying, and Reasoning. Students will spend approximately one-third 

of their time on items in each category. In addition, approximately 

one-third of the time that students spend in each content area—

Market, National, and International Economies­—will be spent 

answering items in each cognitive category. 

1. Knowing (33 percent)—This category measures students’ abilities to identify and recall information and to recognize economic 

terms and concepts. Items in the Knowing category will ask 

students to:

● recognize and recall information and concepts;

● interpret data and information to identify events or trends.

2. Applying (33 percent)—This category measures students’ abilities to describe or explain the relationship between information 

(data, summaries, headlines, problems, and scenarios) and 
36

economic concepts. Items in the Applying category will ask 

students to:

● restate an economic concept in their own words;

● interpret data and information to identify events or trends and 

explain cause;

● analyze a given scenario or event that requires only one step in 

the analysis;

● apply or use a concept when the concept is specified.

3. Reasoning (33 percent)—This category measures students’ ability to use information and economic concepts accurately to solve 

problems, evaluate issues, and interpret situations. Items in the 

Reasoning category will ask students to:

● interpret data to identify an event or a trend, explain the cause, 

and recommend policy;

● apply or use a concept when the concept is not specified;

● apply more than one concept when one or more concepts are 

specified;

● perform a multiple-step analysis on a given scenario or event.

Cognitive Categories

(Percent of time spent)

Knowing

33%

Applying

33%

Reasoning

33%
37

Contexts and Applications

Economics has broad applicability and is rich in opportunities to 

apply and use core principles and understanding. In addition, young 

people at the secondary level learn economics in a wide variety of 

settings, in and out of the academic classroom. Recognizing those 

characteristics, the project committees recommend that the items 

in the National Assessment of Educational Progress (NAEP) assessment be set in various contexts. This not only recognizes that 

students learn in a number of different courses but also benefits 

students whose understanding of economic concepts is derived from 

experiences other than formal study.

This requirement is intended to:

● assess the extent to which students are able to demonstrate 

their understanding of economics in real-world situations;

● make the assessment accessible to students whose understanding of economic concepts is derived from experience or 

familiarity with everyday economic decisionmaking rather 

than formal study.

Although a small number of items may not be set in a specific 

context, 60 to 90 percent should be, with 20 to 30 percent of the 

items set in each of the following three contextual areas: 

● An individual and household context, including items related 

to personal finance (i.e., earning, spending, saving, borrowing, 

and investing); 

● A business context, including items related to entrepreneurs, 

workers, producers, and investors;

● A public context, including items related to government, 

policy, citizenship, and domestic and international 

organizations.

The remainder of the items will be in other contexts, in multiple 

contexts, or context free.

Context-based and context-free items will be distributed across 

the three content areas (the Market Economy, the National Economy, and the International Economy) and across the three cognitive 

levels (Knowing, Applying, and Reasoning). Examples of items 
38

and the types of answers expected in each of the different contexts 

appear below:1

Example of a context-free item:

Using demand and supply analysis, explain how the quantity of a 

product purchased could increase when price increases.

An increase in demand for a product will cause an increase in 

price and an increase in the amount produced and sold. The 

law of demand states that if everything else remains the same, 

the quantity of a product purchased will decrease when price 

increases. However, both price and quantity can increase if 

something else has changed and causes demand to increase.

Example of an individual- and household-context item:

Last year Marisol spent $500 per month to rent an apartment 

near State University. Many more students are looking for apartments this year than looked last year.

What will most likely happen to the rent for a typical apartment 

near State University? Explain why.

How will Marisol respond? Explain why.

The rent will increase with an increase in demand for apartments. Marisol will have to reduce her consumption of other 

goods and services, rent a smaller apartment or move into a 

dorm room, spend more of her savings, and/or take a part-time 

job. 

Example of a business-context item:

The price of cheese that restaurants use to make pizza has 

doubled during the past year. 

What will most likely happen to the price of pizzas and the number of pizzas sold? Explain why. 

The cost of making pizzas has increased because the price of 

cheese has doubled. As a result, the supply of pizzas will decrease, the price will increase, and the number of pizzas sold will 

decrease. 

1 The contextual examples could be written as multiple-choice or short 

constructed-response items.
39

Example of a public-context item:

Some high school graduates choose between going to college or 

entering the armed forces right after high school. Suppose Congress has recently passed a program that will significantly lower 

college tuition. 

What will most likely happen to the number of high school 

graduates who go to college? Explain why.

What will most likely happen to the number of high school 

graduates who enter the armed forces? Explain why.

The program will increase the number of high school graduates 

who will choose to go to college because of the lower tuition. If 

more of these graduates go to college, fewer graduates will be 

available to enter the armed forces right after high school.

Graphing, Table and Chart Interpretation, and 

Calculation Skills

The project committees devoted considerable time to the issues 

involved in the appropriate inclusions of graphs, charts, and tables 

and the expectations regarding calculation and data manipulation 

skills. Graphs that summarize behavioral relationships between two 

variables are an essential part of most economics courses; however, in most courses, they are used as tools, and understanding the 

graphs is not identified as an outcome. Supply and demand graphs 

are the most common example of these types of two-dimensional 

graphs that simultaneously show the behavior of two economic 

variables. Although these tools are important, students who can interpret supply and demand examples and applications without using 

graphs should be judged successful economics students. Thus, we 

should not expect students to be able to read and interpret graphs in 

significant numbers of items. A much more important skill is their 

ability to interpret supply and demand and market concepts and to 

identify appropriate opportunities to use and apply the concepts.

The project committees recommend that although graphs, such 

as those representing demand and supply, can be used in limited 

numbers of multiple-choice items, students should be able to perform well on the assessment by answering items that do not include 

graphs. In addition, the committees believe that the scoring of short 
40

and extended constructed-response items should permit, but not 

require, students to use graphs in answering items, as long as they 

clearly show that they understand the underlying concepts and are 

able to apply the concepts successfully and accurately. Twovariable graphs that depict relationships such as supply and demand, 

cost and investment functions, and aggregate supply and demand 

should not be used as stimulus materials or in the stems of short and 

extended constructed-response items.

The interpretation of tables and charts with data and data trends 

is sufficiently important that their inclusion in some items is appropriate. Some limited interpretation of data in table form may 

enhance the assessment of more important concepts, such as equilibrium price and quantity in a supply and demand problem. Charts 

and time-series graphs that summarize levels and trends in data may 

be useful for assessing how well students understand such concepts 

as unemployment, inflation, and economic growth. Such tables, 

charts, and time-series graphs may be used as stimulus material in 

multiple-choice, short constructed-response, and extended constructed-response items. Again, the focus of the items should be on 

measuring students’ understanding and application of concepts. 

Calculation and manipulation of numbers should be held to a 

minimum. The focus of the assessment should be on understanding 

economic concepts and their applications. Calculation of multipliers 

and elasticities should not be expected. If calculation is useful in 

assessing a concept, the calculation should be simple and straightforward. The goal is not to assess arithmetic or algebraic abilities.

Types of Items

The project committees spent considerable time discussing the 

different types of items that might be used to measure the economic 

literacy of grade 12 students. For some standardized tests, research 

has shown a high level of correlation between the performance of 

students on multiple-choice items and on constructed-response 

items, which suggests that the items may be measuring the same 

content, skills, or both. However, the committee members also 

noted that constructed-response items allow more opportunity for 

examining higher level thinking skills than is possible when only 

multiple-choice items are used. The members decided, therefore, 

to include multiple-choice and short and extended constructedresponse items on the assessment. 
41

● Multiple-choice items require students to select the correct or 

best answer to a given item. These items have one correct or 

best answer and are scored as either correct or incorrect.

● Short constructed-response items require students to respond 

in short answers that may vary from one or two words or 

phrases to several sentences. Short constructed-response 

items are scored according to scoring rubrics with two or 

three categories.

● Extended constructed-response items require students to 

consider a situation that demands more than a short response 

and allows a number of gradations of correctness. Extended 

constructed-response items may require the application of an 

economics concept such as supply and demand, a detailed 

analysis, the synthesis or interpretation of data, and/or the 

projection of a trend. Extended constructed-response items are 

scored according to scoring rubrics with five categories.2

Each content area includes knowledge and skills that can be measured with each of the three item formats. Each cognitive category 

can be measured by any of the item formats. Although a particular 

cognitive category may seem to lend itself more readily to one item 

format, each type of item—multiple choice, short constructed 

response, and extended constructed response—can deal with economics of greater or less depth and sophistication.

To allocate the number of items or the amount of time to the different types of items, the committees weighed costs versus benefits. 

Because multiple-choice items tend to be less expensive to develop 

and grade and more reliable, the committee decided that this type 

of item should be used when possible. For items that require deeper 

understanding or a higher skill level, the committees believed that 

the benefits of short and extended constructed-response items would 

outweigh the costs of development and grading. Students will spend 

approximately 60 percent of their time on multiple-choice items, 

30 percent on short constructed-response items, and 10 percent on 

extended constructed-response items. All three types of items will 

be included in each of the three content areas.

2 In some cases, it may be appropriate to have four scoring categories for an 

extended constructed-response item, depending on the construct assessed and the 

nature of expected student responses to the item.
42

Economic Terminology

Students learn economics in a number of ways, and many may 

not know the terms used in standard economics courses and texts 

but still understand the concept being assessed. The project committees believe that the essential parts of economic literacy are the 

abilities to use and apply economic concepts and analysis, which do 

not necessarily include the ability to name the concepts in all cases. 

The emphasis throughout the assessment should be on assessing 

how well students understand the meaning of concepts and can use 

application and reasoning skills, not how well they can define technical and economic-specific language. For these reasons, item writers should be careful about the use of language and need to include 

items, where possible, that assess understanding without using the 

specific economic terminology. 

To assist item writers in that process, the project committees recommend that certain terms not be used in the stems or the options 

of multiple-choice items or in constructed-response items. However, the concepts underlying those terms are to be assessed when 

they are included in the standards and benchmarks. Recognizing 

that students with formal courses in economics may use economic 

terminology, the project committees recommend that students who 

indicate equal understanding on a given constructed-response item 

receive equal credit, regardless of whether they use these terms 

or not.

Types of Questions

(Percent of time spent)

Multiple

Choice 60%

Short 

Constructed 

Response 30%

Extended 

Constructed 

Response 10%
43

The following terms may not be used in items:

Absolute advantage

Balance of trade

Circular flow

Double coincidence of wants

Expected value

Externalities and spillover effects

Macroeconomics

Marginal analysis

Marginal benefit/cost (Use “additional” or “extra” or “changes 

in.”)

Market-clearing price (Use “equilibrium price.”)

Microeconomics

Monopolistic competition

NAIRU (Non-accelerating inflation rate of unemployment)

Natural monopoly

Natural rate of unemployment

Net exports

Nominal

Oligopoly

Potential GDP (Use “real gross domestic product in the 

long run.”)

Price elasticity of demand

Production possibility frontier or curve

Time value of money

Transaction costs

In the same spirit, the project committees recommend that the 

item writers not test specifically the differences between “quantity 

demanded” and “demand” and between “quantity supplied” and 

“supply.” The use of the concepts is obviously important in answering a number of items correctly. Although using the term “open 

market operations” is permissible, the committees prefer that items 

use “purchase or sales of bonds.” “Gross domestic product” is preferred over “GDP.”

Preliminary Descriptions of Achievement Levels 

The project committees have made recommendations for preliminary descriptions of definitions of the three achievement levels used 

in NAEP assessments. The committees combined the generic NAEP 

definitions of each achievement level with the cognitive category 
44

definitions and examples from the content outline. The first, second, 

and third paragraphs of each recommendation suggest examples for 

the knowing, applying, and reasoning cognitive categories, respectively. The resulting recommendations are stated below:

Basic

Students performing at the Basic level of achievement should 

be able to identify, recall, and recognize economic concepts 

such as scarcity, choices, price, supply and demand, competition, inflation, unemployment, imports and exports, and trade. 

They should be able to describe and explain the relationship 

between economic concepts. Examples include relationships 

between inflation and purchasing power, taxes and government spending, unemployment and consumption, price and 

quantity in supply and demand, trade and specialization, interest rates and loan payment levels, and human capital investment and income. 

Students at the Basic level should be able to use data and 

information to identify an economic outcome. For example, 

students should be able to predict the effects of a natural 

disaster on the quantity or price of a product or the effect of 

a factory’s closing on a local economy. Students should be 

able to identify the potential for greater return when given the 

descriptions of two financial assets.

Proficient

Students performing at the Proficient level should be able to 

identify, recall, and recognize economic concepts and terms 

such as costs and benefits in decisionmaking, responses to 

incentives, the mechanics of monetary and fiscal policy, trade 

barriers, exchange rates, and factors that influence economic 

growth.

Students should be able to demonstrate their understanding 

of economic ideas and terms by explaining the relationship 

between a real-world economic situation and its underlying 

economic concepts. For example, given a description of two 

industries, students should be able to explain the relevant 

characteristics that distinguish them. Students should be able 

to compare and contrast the effects of monetary and fiscal 
45

policy on the price level and output. They also should be 

able to identify the effects of changes in interest rates on an 

individual’s decisions to finance the purchase of a car or a 

home.

At the Proficient level, students should be able to use economic data, information, and concepts to solve problems, evaluate 

issues, and interpret situations. For example, students should 

be able to explain the appropriate monetary and fiscal policies for a given set of economic data. Or, they should be able 

to explain the cause and effect of an increase in taxes on the 

consumption of a specific product. In the international arena, 

students should be able to interpret the effect of a new tariff 

on employment in a domestic industry.

Advanced

Students at the Advanced level should be able to identify, 

recall, and recognize economic terms such as real interest rate, 

elasticity, property rights, and comparative advantage and to 

identify, recall, and recognize concepts such as the present 

and future values of money, market structure, and real gross 

domestic product in the long run.

At the Advanced level, students should be able to analyze 

economic data and information and to apply the economic 

concepts to real-world situations. For example, by applying tools such as aggregate supply and aggregate demand 

analysis, students should be able to explain what happens to 

real gross domestic product during a business cycle. Students 

should be able to interpret economic trends and to apply data 

to future personal investment options. 

Students at the Advanced level should be able to analyze data, 

determine trends, and make economic projections. Students 

should be able to reason economically by using a variety of 

tools including charts and graphs, computations, and written 

explanations. For example, students should be able to analyze 

the rationale for an entrepreneur to start a new business and 

the subsequent changes in the market, including the number of 

firms, prices, profit, and output. They should be able to extend 

the analysis of monetary and fiscal policy options to include 

the effects on exchange rates and international trade.
47

Appendix A 

References
49

References

Buckles, S., and M. Watts (1997). “An Appraisal of Economics Content in the History, Social Studies, Civics, and Geography 

National Standards. American Economic Review, 87(2), 254-9.

Dempsey, J.R. (2000). Findings of the National Survey of Economic Education-2000. New York: National Council on Economic 

Education.

Gilliard, J., J. Caldwell, B. Dalgaard, R. Highsmith, R. Reinke, 

and M. Watts (1988). Economics: What and When? New York: Joint 

Council on Economic Education.

Hansen, W.L., G.L. Bach, J. Calderwood, and P. Saunders 

(1977). A Framework for Teaching Economics: Basic Concepts. 

New York: Joint Council on Economic Education.

National Center for Education Statistics (2001). The 1998 High 

School Transcript Study Tabulations: Comparative Data on Credits 

Earned and Demographics for 1998, 1994, 1990, 1987, and 1982 

High School Graduates. Washington, DC: U.S. Department of Education, Office of Educational Research and Improvement.

National Council on Economic Education (1997). Voluntary 

National Content Standards in Economics. New York.

Saunders, P. et al. (1984). A Framework for Teaching the Basic 

Concepts (2nd ed.). New York: Joint Council on Economic 

Education. 

Walstad, W.B. (2001). “Economic Education in U.S. High 

Schools.” Journal of Economic Perspectives, 15(3), 195-210.
51

Appendix B 

NAEP Economics Framework Project
53

Steering Committee 

Members

Robin Bartlett

Professor of Economics

Denison University

Granville, OH

Patricia Concannon

Social Studies Consultant

New Mexico State 

Department of Education

Santa Fe, NM

Robert Costrell

Director of Research and 

Development

Executive Office for 

Administration and Finance

The Commonwealth of 

Massachusetts 

Boston, MA

(on leave from the University 

of Massachusetts-Amherst)

Dara Duguay

Executive Director

Jump$tart Coalition for 

Personal Financial Literacy

Washington, DC

Robert Duvall

President and Chief Executive 

Officer

National Council on Economic 

Education

New York, NY

Pete Harder

Consultant (Former 

Senior Vice PresidentEducation)

Junior Achievement

Colorado Springs, CO

Betty Lin-Fisher

Consumer Reporter and 

Columnist

Akron Beacon Journal

Akron, OH

Sally Meek

Teacher

Plano West Senior High School

Plano, TX

Diane Oakley

Vice President

TIAA-CREF

Washington, DC

Bill Odom

Former Chairman and Chief 

Executive Officer

Ford Motor Credit Company

Lake City, SC

Dennis Placone

Associate Professor of Economics

Clemson University

Center for Economics Education

Clemson, SC

Gary Stern

President and Chief Executive 

Officer

Federal Reserve Bank of 

Minneapolis

Minneapolis, MN

Bob Troyer

Assistant Principal

West Lafayette Junior-Senior 

High School

West Lafayette, IN 
54

Gary Walton

President

Foundation for Teaching 

Economics

Professor of Economics

University of California, Davis

Davis, CA

Bob Wynn

Financial Education Officer

Wisconsin Department of 

Financial Institutions

Madison, WI

Planning Committee 

Members

Rosella Bannister

Principal Consultant

Bannister Financial Education 

Services

Ann Arbor, MI

Nancy I. Brown

Principal Consultant

Brown & Associates, LLC

Colorado Springs, CO

Sterlind S. Burke

Principal

Patuxent Valley Middle School

Jessup, MD

Fredrick Czarra

Consultant

Council of Chief State School 

Officers

Washington, DC

Marisol Delgado

Teacher

Our Lady of Lourdes Academy

Miami, FL

Rae Jean B. Goodman

Professor of Economics

United States Naval Academy

Annapolis, MD

Daniel Gregg

Social Studies Consultant

Connecticut State Department 

of Education

Bureau of Curriculum and 

Instruction

Hartford, CT

Gail Mitchell Hoyt

Associate Professor of Economics 

University of Kentucky 

College of Business and 

Economics 

Lexington, KY

Joy Joyce

Teacher

Willowbrook High School

Villa Park, IL

Don R. Leet

Professor of Economics and 

Director of the Center 

for Economic Education

California State 

University, Fresno

Fresno, CA

Darrell Luzzo

Senior Vice President-Education 

(Former Vice President for 

Education Research, 

Evaluation, and Outreach)

Junior Achievement

Colorado Springs, CO
55

Richard MacDonald

Assistant Professor of 

Economics and Assistant 

Director of the Center 

for Economic Education

St. Cloud State University

St. Cloud, MN

Sarapage McCorkle

Director

Center for Entrepreneurship 

and Economic Education 

University of Missouri-St. Louis

St. Louis, MO

Karl Ochi

Teacher

George Washington High School

San Francisco, CA

Timothy O’Driscoll

Teacher

Arrowhead High School

Hartland, WI

Joann Prewitt

Social Studies Assessment 

Specialist

Delaware Department of 

Education

Dover, DE

Kathryn Ratté

Consultant in Economic 

Education

Foundation for Teaching 

Economics

Littleton, CO

Robert Strom

Teaching and Research Fellow

Ewing Marion Kauffman 

Foundation

Kansas City, MO

George M. Vredeveld

Director

Greater Cincinnati Center 

for Economic Education 

University of Cincinnati

Cincinnati, OH

Scott Oppler

Liaison from the Technical 

Advisory Panel to the 

Planning Committee 

William (Bill) Walstad

Liaison from the Technical 

Advisory Panel to the 

Planning Committee

Technical Advisory Panel 

Members

Ruth Childs

Assistant Professor

Ontario Institute for Studies in 

Education of the University 

of Toronto (OISE/UT)

Toronto, ON

Huynh Huynh

Professor of Education and 

Affiliated Professor of 

Statistics

College of Education

University of South Carolina

Columbia, SC
56

John Olson

Assistant Director

State Education Assessment 

Center

Council of Chief State School 

Officers

Washington, DC 

William (Bill) Walstad

Professor of Economics

University of Nebraska-Lincoln

Department of Economics

Lincoln, NE

Management Team 

Members

Stephen Buckles

Project Associate

Department of Economics

Vanderbilt University

Nashville, TN 

Mary Crovo

Project Officer

National Assessment 

Governing Board

Washington, DC

Stephen Klein 

Co-project Director

Co-chair of Steering Committee

American Institutes for Research

Washington, DC

Wayne Martin

Co-chair of Steering Committee 

Council of Chief State School 

Officers

Washington, DC

Claire Melican

Co-chair of Planning Committee

National Council on Economic 

Education

New York, NY

Julia (Judy) Mitchell

Co-project Director

Co-chair of Planning Committee

American Institutes for Research

Palo Alto, CA 

Scott Oppler

Chair of Technical Advisory 

Panel

Liaison to the Planning Committee

American Institutes for Research

Washington, DC

Task Leaders

Daniel Conrad

Web Site Development Task 

Leader and Project Associate

American Institutes for Research

Washington, DC 

Elizabeth Greenberg

Background Questionnaires Task 

Leader

American Institutes for Research

Washington, DC
57

Appendix C 

Steering Committee Charge to the Planning Committee
59

Steering Committee Charge to the 

Planning Committee

Through a deliberative process, the Steering Committee tackled the issues described in Chapter 2 and delivered a “Charge” to 

the Planning Committee, whose task was to take the Charge and 

develop this framework. The Charge is outlined below.

The Planning Committee used the Charge as a foundation for its 

work. The outcome as described in this document differs in only 

one minor aspect. The Charge specified nine reporting themes. 

Although members of the Planning Committee believe that all 

nine themes are included in the content framework, nine separate 

themes for reporting purposes are excessive for an assessment such 

as NAEP. The reporting themes were reduced in number, but not in 

scope, to three. 

A. Ensure a strong rationale for economics education:

● The increasingly complex financial and political 

environment

● Themes of Chairman Alan Greenspan’s speeches

● The role of economics education in accessing opportunities to create wealth

● Information management of financial news (media 

overload)

● Fully functioning citizens, employees, employers, 

personal consumers

B. Focus on the BIG picture:

● Do students have a basic understanding of how a commercial society operates?

● Do students understand how they function in it?

● Can they make informed and rational decisions?

● Do they understand the role of incentives?

● Do they understand the institutions that make up the 

democratic free-market economy?
60

● Do they understand basic economics concepts?

● Can they use economic tools and data to analyze events 

and policies? 

C. Use voluntary national standards as a starting point:

● Modify them as needed.

● Include “time value of money.”

D. Stress applications:

● Use real-life problems. 

● Examine the roles of the individual (including personal 

finance), business (labor, entrepreneurs), and society.

● Use economic analysis and economic method.

E. Economics items should:

● Be inclusive with regard to student subgroups.

● Use a variety of item formats (multiple-choice, graphs/

graphing, short answer, extended constructed-response).

● Reflect the diversity of learning styles and settings 

(variety of experiences and stimuli).

● Measure various cognitive levels (consider abilities 

dimensions such as knowledge, application, interpretation, synthesis, and evaluation).

● Reflect best practices from teaching and learning.

F. Background information should include questions about 

the following: 

● Courses taken (required or elected)

● Informal/external learning (parents, own experience, 

etc.)

● Employment (types of) 

● Computer use 

● Sources of economic and financial news
61

G. Students should understand the following suggested 

reporting themes:

1) Fundamental concepts:

	 ● Scarcity

	 ● Tradeoffs

	 ● Opportunity costs

	 ● Comparative advantage

	 ● Incentives

2) Dynamics of economic growth:

	 ● Human capital

	 ● Technological change

	 ● Business investment

3) How the price system makes a market economy work:

	 ● Demand and supply

	 ● Roles of incentives

	 ● Competition

4) Sources of income and profit:

	 ● Incentives, risk-taking, and entrepreneurship

	 ● Production

	 ● Investment in human and business capital

5) How economic institutions work and interact with the 

market economy:

	 ● Financial institutions and markets

	 ● Labor organizations

	 ● Legal systems, including property rights
62

6) Role of money and interest rates in the economy:

	 ● Time value of money

	 ● Role of money in exchange

	 ● Business finance

	 ● Personal credit

	 ● Inflation

7) Business cycles and the role of government policy:

	 ● Income

	 ● Unemployment

	 ● Inflation

	 ● Federal Reserve

	 ● Federal budget policy

8) Role of government in a market economy, including its 

costs and benefits:

	 ● Regulatory

	 ● Environmental

9) International economics:

	 ● Trade

	 ● Capital flows
63

Appendix D 

Sample Items
65

Sample Items

The Market Economy

Item Content Benchmark Cognitive Context Format Key

 Number Area Category

 1 Market 1.8.1 Knowing Business MC A

The price of movie tickets has increased. According to the law of 

demand, what is likely to be the result? 

A. Theaters will sell fewer tickets.

B. Theaters’ revenues will increase.

C. The quality of movie theaters will improve.

D. The number of videos rented will decrease.

Item Content Benchmark Cognitive Context Format Key

 Number Area Category

2 Market 1.1.1 Applying Individual MC A

 Economy and

 Household 

The Bodor family wants to rent a larger apartment and would like 

to buy a new car. They found two apartments that would meet their 

needs, but one costs more and has several more desirable features. 

The Bodors’ current financial condition would enable them either 

to rent the more expensive apartment and not buy a new car or to 

rent the less expensive apartment and buy a new car. The Bodors 

decided to rent the more expensive apartment. What is the opportunity cost of the decision?

A. Both the new car and the less expensive apartment

B. The new car only

C. The less expensive apartment only

D. The more expensive apartment only
66

Item Content Benchmark Cognitive Context Format Key

 Number Area Category

 3 Market 1.8.1 Knowing Business MC A

 Economy

Suppose that an industry experiences significant increases in the 

prices of the inputs used in its manufacturing processes. Which of 

the following graphs represents the effects in the market for the 

industry’s product?

A. B.

C. D.
67

The National Economy

Which of the following is the best measure of production or output 

of an economy?

A. Gross Domestic Product 

B. Consumer Price Index 

C. Unemployment Rate

D. Prime Rate

Item Content Benchmark Cognitive Context Format Key

 Number Area Category

4 National 2.18.2 Knowing None MC A

 Economy

Item Content Benchmark Cognitive Context Format Key

 Number Area Category

5 National 2.20.8 Applying Public MC B

 Economy

What is a major effect of a purchase of bonds by the Federal Reserve? 

A. A decrease in margin requirements for stock purchases

B. An increase in the number of commercial bank loans

C. A decrease in the supply of money

D. An increase in interest rates
68

Item Content Benchmark Cognitive Context Format Key

 Number Area Category

6 National 2.20.9 Reasoning Public ECR Rubric

 Economy

Economic Indicators Trend or Current Value

Gross domestic product Declines four quarters in a row

Inflation  percent

Unemployment 7 percent

Economic Indicators in the United States

Use the information shown in the chart above to complete the following tasks.

A. What problem is evident from the information in the chart?

B. Recommend one monetary policy action that would help remedy the problem you identified in A.

C. Explain the process by which your recommended policy will 

affect gross domestic product.

Scoring Rubric 

4 points Response identifies the problem as a recession, fall in 

gross domestic product, or high unemployment; proposes that the Federal Reserve purchase bonds, decrease 

reserve requirements, lower the discount rate, or reduce 

the target federal funds rate; indicates that the recommended monetary policy will lower interest rates or 

expand the money supply; and states that the lower interest rates or greater money supply will cause an increase 

in investment or consumption, or both, and thus increase 

gross domestic product.

3 points Response includes the identification of the problem as 

a recession, a fall in gross domestic product, or high 
69

unemployment; a proposal that the Federal Reserve purchase bonds, decrease reserve requirements, lower the 

discount rate, or reduce the target federal funds rate; and 

an argument that the recommended monetary policy will 

lower interest rates or expand the money supply.

2 points Response identifies the problem as a recession, a fall 

in gross domestic product, or high unemployment and 

proposes that the Federal Reserve does at least one of 

the following: purchase bonds, decrease reserve requirements, lower the discount rate, or reduce the target 

federal funds rate.

1 point Response identifies the problem as a recession, a fall in 

gross domestic product, or high unemployment.

0 points No appropriate response

The purpose of the scoring rubrics in the framework is to illustrate 

the type of response needed to obtain a given number of points. 

Actual rubrics used in scoring are more elaborate and will include a 

number of possible options for each of the point totals. Examples of 

alternative rubrics for the above follow:

3 points Response includes the identification of the problem as 

a recession, a fall in gross domestic product, or high 

unemployment; a statement that the recommended 

monetary policy will lower interest rates or expand the 

money supply; and a statement that investment and/or 

consumption will increase and thus increase gross domestic product.

OR

Response proposes that the Federal Reserve purchase 

bonds, decrease reserve requirements, lower the discount 

rate, or reduce the target federal funds rate; indicates that 

the recommended monetary policy will lower interest 

rates or expand the money supply; and states that the 

lower interest rates or greater money supply will cause 

an increase in investment or consumption, or both, and 

thus increase gross domestic product.
70

2 points Response includes the identification of the problem as 

a recession, a fall in gross domestic product, or high 

unemployment and a statement that the recommended 

monetary policy will lower interest rates or expand the 

money supply.

OR

Response includes a statement that monetary policy will 

lower interest rates or expand the money supply and that 

investment and/or consumption will increase and thus 

increase gross domestic product.

Item Content Benchmark Cognitive Context Format Key

 Number Area Category

7 International 3.5.1 Knowing None MD C

 Economy

Why are businesses in two different countries most likely to trade 

with each other?

A. They know that although one business will be hurt from 

trading, the other will be better off, and they both hope to be 

the winner.

B. Businesses are unable to sell their products in their own 

countries.

C. Each business expects to be better off as a result of the trade. 

D. Their respective governments require them to do so. 

The International Economy
71

Item Content Benchmark Cognitive Context Format Key

 Number Area Category

8 International 3.5.2 Applying Public MC A

 Economy

If Mexico were to place a tariff on automobiles imported from the 

United States, the price and the quantity of automobiles imported 

into Mexico from the United States are most likely to change in 

which of the following ways?

Price Quantity

A. Increase Decrease

B. Increase Increase

C. Decrease Decrease

D. Decrease Increase

Item Content Benchmark Cognitive Context Format Key

 Number Area Category

9 International 3.7.2 Reasoning None ECR Rubric

 Economy

Use the following information on exchange rates in June and December to answer questions A and B. 

Price of the United States Dollar in 

Foreign Currency

Foreign Currency June December

European Euro 1.08 1.10

Mexican Peso 9.506.00 9.606.10

A. In terms of the Euro and the Peso, what happened to the value 

of the U.S. dollar between June and December? 

B. What will most likely happen to U.S. exports and imports? 

Explain why.
72

Scoring Rubric

3 points Response includes a statement that the value of the dollar increased, a statement that United States exports will 

decrease and U.S. imports will increase, and an explanation of the cause of the change in exports and imports. 

An increase in the value of the dollar will make U.S. 

goods relatively more expensive for foreigners to buy; 

thus, the purchase of exports will decrease. Goods from 

abroad will be less expensive; thus, more will be bought.

2 points Response includes a statement that the value of the dollar increased and one of the following statements: U.S. 

exports will decrease and U.S. imports will increase; 

exports will decrease because they are relatively more 

expensive for foreigners to buy; or imports will increase 

because they are now relatively less costly for U.S. citizens to buy. 

1 point Response indicates that the value of the dollar has 

increased or that it takes more Euros and Pesos to buy a 

U.S. dollar. 

0 points No appropriate response
73

Appendix E 

Framework Development Process
75

Framework Development Process

In September 2001, NAGB awarded a contract to the American 

Institutes for Research (AIR) to conduct the NAEP Economics 

project. AIR subcontracted with the National Council on Economic 

Education (NCEE) and the Council of Chief State School Officers 

(CCSSO) to develop recommendations to NAGB for the 2006 Economics Assessment. 

To develop the recommendations, the Project Management 

Team, composed of leadership from the contractor and subcontractors, directed the work of three committees: a Steering Committee, 

a Planning Committee, and a Technical Advisory Panel (TAP) to 

make recommendations to NAGB on the following:

● a framework for the assessment

● assessment and item specifications based on the framework

● background variables to be collected from students, teachers, 

and school administrators

The Steering Committee consisted of 15 members, the Planning 

Committee had 19 members, and the Technical Advisory Panel 

had 4 members. The Steering and Planning Committees included 

secondary teachers and administrators, college and university teachers, representatives of professional education organizations and the 

private sector, policymakers, and members of the public. The TAP 

included educational measurement experts and psychometricians 

from the United States and Canada. Members of each project committee and the Project Management Team are listed in Appendix B.

The process for developing the recommendations included the 

following activities:

● developing an issues paper

● holding a series of meetings of the various committees to 

develop draft documents

● developing and maintaining a project web site to facilitate 

communication and to review documents

● conducting a broad-based national review of the draft 

framework 
76

Issues Paper. Prior to the first meeting of the committees, a 

paper highlighting key issues in developing the framework and 

specifications for the economics assessment was developed for use 

as a point of initial discussion.

Meetings. The Steering Committee met three times to set the 

overall guidelines for the project and to act in an advisory capacity, 

review materials, and recommend revisions and changes. At each of 

these meetings, some time was spent in separate sessions, and some 

time was in joint meetings with the Planning Committee. 

The Planning Committee met five times and designed the framework, the specifications, and the background variables document 

with the assistance of the TAP and the Project Management Team. 

The schedule of meetings is shown below.

November 28–30, 2001 Steering and Planning Committees

January 17–18, 2002 Planning Committee, 

TAP representative

March 6–8, 2002 Planning and Steering Committees, 

full TAP

June 6–7, 2002 Planning Committee, full TAP

July 9–10, 2002 Planning and Steering Committees, 

TAP representative

Web site. A project web site also was designed to facilitate communication and document review. The web site contained areas for 

public access as well as areas for project committee use. During the 

development process, staff and committee members were able to 

post to the project committee areas iterations of the Issues Paper, 

framework, and specifications; request and offer feedback; and hold 

online discussions. Members of the public could visit the publicly 

accessible areas to view later iterations of the Issues Paper and the 

framework, offer recommendations, and obtain information about 

development milestones and meeting dates.

National Review. In addition to being posted on the web site and 

reviewed by members of the committees and the Project Management Team, the framework was presented in 10 national review 

forums. Hundreds of stakeholders—educators, business and labor 

representatives, students, and policymakers—were involved in the 

evolution of the Framework Development Project through their 

participation in the national review forums and other reviews of the 
77

Midwest Economics Federal Reserve Bank College and university

Educators Conference St. Louis, MO professors of economics

April 11

AFL-CIO/ Wilshire Grand Hotel Union and nonunion

United Association for Labor Los Angeles, CA conference attendees with 

Education Annual Education April 11 an interest in labor education

Conference

Meeting of the Wisconsin Pyle CenterGovernor’s Task Force members,

Task Force on Madison, WI representing business,

Financial Education April 11 government, education,

foundations, and the

general public

Consumer Education Places and times of Committee co-chairs

Committee of the American their own choosing

Council on Consumer 

Interests

Meeting of various staff at The Conference Board An economist, a research

The Conference Board New York, NY statistician, two research

May 3 librarians, and Human

Resources and other staff

Spring meeting of the DoubleTree Crystal City State Assessment Directors

Education Information Hotel and various staff and

Advisory Committee Arlington, VA observers

(EIAC) May 6

 

Meeting of The Conference Willard Inter-Continental Corporate executives and

Board’s Business/ Hotel education leaders 

Education Council Washington, DC

May 8

Spring conference of the Holiday Inn Select Illinois secondary school

Illinois Association of Tinley Park, IL economics teachers and

School Economics May 10 potential economics

Teachers teachers

National Summit on National Press Club Business people,

Economic and Financial Washington, DC academics, National Council

Literacy May 14 on Economic Education

(NCEE) Council Directors, 

and the general public 

NCEE/ High School of Economics Secondary school 

Goldman Sachs Foundation and Finance economics students (both

Economic Challenge New York, NY regular and Advanced

May 19 Placement) and their teachers

Venue Place and Date Audience 

document. The dates, venues, and audiences for the national review 

are shown in the following table.
78

 

The timeline for the project was as follows:

● Fall 2001—NAGB awarded the Economics Contract and 

delivered its charge to the project Steering Committee. Project 

consultants developed an issues paper to guide committee 

discussions.

● Fall 2001 through Winter 2002—The Steering and Planning 

Committees met several times. The Steering Committee developed the “Charge” to guide the work of the Planning Committee. The Planning Committee developed the framework 

and specifications for the assessment.

● April and May 2002—The framework was made available for 

national review.

● November 2001, March and May 2002—Project staff briefed 

the NAGB Assessment Development Committee and the full 

Board on the project’s status, preparation of draft documents, 

and related issues. 

● Summer 2002—Full recommendations for the assessment 

framework, specifications, and background variables were 

prepared and submitted to NAGB.

● August 2002—NAGB took final action on recommendations 

regarding the 2006 NAEP Economics Assessment on the 

Framework, Specifications, and Background Variables.
79

Appendix F 

Acknowledgments
81

Acknowledgments

Stephen Buckles, Vanderbilt University, and Claire Melican, 

National Council on Economic Education, prepared this document, 

with major contributions from the members of the Steering Committee, the Planning Committee, and the 2006 NAEP Economics 

Assessment Management Team.