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. 

Members 

Darvin M. Winick, Chair 

President Winick & Associates Dickinson, Texas 

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 
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. 

Members

Honorable David P. Driscoll, Chair

Former Commissioner of Education

Melrose, Massachusetts

Mary Frances Taymans, SND, Vice 

Chair

Sisters of Notre Dame

National Education Office

Bethesda, Maryland

Andrés Alonso

Chief Executive Officer

Baltimore City Public Schools

Baltimore, Maryland

David J. Alukonis

Former Chairman

Hudson School Board

Hudson, New Hampshire

Louis M. Fabrizio

Data, Research and Federal Policy

 Director

North Carolina Department of

Public Instruction

Raleigh, North Carolina

Honorable Anitere Flores

Senator

Florida State Senate

Miami, Florida

Alan J. Friedman

Consultant

Museum Development and Science

 Communication

New York, New York

Shannon Garrison

Fourth-Grade Teacher

Solano Avenue Elementary School

Los Angeles, California

Doris R. Hicks

Principal and Chief Executive

 Officer

Dr. Martin Luther King, Jr. Charter

 School for Science and Technology

New Orleans, Louisiana

Honorable Terry Holliday

Commissioner of Education

Kentucky Department of Education

Lexington, Kentucky

Richard Brent Houston

Principal

Shawnee Middle School

Shawnee, Oklahoma 

Hector Ibarra

Eighth-Grade Teacher

Belin Blank International Center

 and Talent Development

Iowa City, Iowa

Honorable Tom Luna

Idaho Superintendent of Public 

Instruction

Boise, Idaho

Honorable Jack Markell

Governor of Delaware

Wilmington, Delaware

Tonya Miles

General Public Representative

Mitchellville, Maryland

Dale Nowlin

Twelfth-Grade Teacher

Columbus North High School

Columbus, Indiana

Honorable Sonny Perdue

Former Governor of Georgia

Atlanta, Georgia

Susan Pimentel

Educational Consultant

Hanover, New Hampshire

W. James Popham

Professor Emeritus

University of California, Los Angeles

Wilsonville, Oregon

Andrew C. Porter

Dean

Graduate School of Education

University of Pennsylvania

Philadelphia, Pennsylvania

B. Fielding Rolston

Chairman

Tennessee State Board of Education

Kingsport, Tennessee

Cary Sneider

Associate Research Professor

Portland State University

Portland, Oregon

Blair Taylor

President and CEO

Los Angeles Urban League

Los Angeles, California

Honorable Leticia Van de Putte

Senator

Texas State Senate

San Antonio, Texas

Eileen L. Weiser

General Public Representative

Ann Arbor, Michigan

John Q. Easton (Ex Officio) 

Director

Institute of Education Sciences 

U.S. Department of Education

Washington, D.C. 

Cornelia S. Orr

Executive Director

National Assessment Governing

Board

Washington, D.C. 
Economics Framework 

for the 2012

National Assessment of 

Educational Progress 

Developed under contract number ED01CO0130 for the National

Assessment Governing Board by the American Institutes for Research,

the Council for Economic Education, and the Council of Chief State 

School Officers
ii

National Assessment Governing Board

David P. Driscoll

Chair 

Mary Frances Taymans, SND

Vice Chair 

Cornelia S. Orr

Executive Director 

Mary Crovo

Deputy Executive Director and Project Officer

Economics Project 

American Institutes for Research

Stephen Klein

Julia Mitchell 

Council for Economic Education

Claire Melican 

Vanderbilt University

Stephen Buckles 

Council of Chief State School Officers

Wayne Martin 

Economics Framework for the 2012 National Assessment of Educational 

Progress. 

Developed for the National Assessment Governing Board under contract 

number ED01CO0130 by the American Institutes for Research, the Council 

for 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 NAEP Economics Assessment? ...........................3

What is the NAEP Economics Framework

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

Chapter 2: Economic Education...............................................6

What is the current state of economic education in 

the United States? ...........................................................6

Chapter 3: Content ..................................................................10

The Market Economy..........................................................12

The National Economy........................................................21

The International Economy .................................................29

Chapter 4: Characteristics of the Assessment.......................32

Cognitive Categories...........................................................32

Contexts and Applications...................................................34

Graphing, Table and Chart Interpretation, and Calculation

Skills.............................................................................36

Types of Items.....................................................................37

Economic Terminology.......................................................39

Descriptions of Achievement Levels...................................41

Appendix A: References...........................................................44

Appendix B: NAEP Economics Framework Project ................46

Appendix C: Steering Committee Charge to the Planning

Committee ...........................................................................51

Appendix D: Framework Development Process.......................56

Appendix E: Acknowledgments...............................................61
iv

Executive Summary 

he 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 2012 National Assessment of Educational Progress (NAEP) 

Economics Assessment. The framework, together with Assessment and 

Item Specifications: NAEP Economics and Recommendations on 

Background Variables: NAEP Economics Assessment, makes 

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 the 

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, decision-making, and analyzing real-life 

situations. 

T
v

The content of the framework is grouped for reporting purposes into 

three areas—the Market Economy, the National Economy, and 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 longrun 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 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. 
vi

The NAEP Economics Assessment will include items that require 

students to use different cognitive skills to demonstrate their 

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 NAEP Economics Assessment and Item Specifications is a 

companion document to the Economics Framework for the National 

Assessment of Educational Progress. 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. 
1

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 (Governing Board), 

whose members are appointed by the Secretary of Education, sets 

policy for NAEP. The Governing Board 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: student 
2

performance data on cognitive items in a subject area assessment and 

background data in questionnaires. The assessment instrument includes 

a variety of tasks, from multiple-choice items to extended constructedresponse items. The variety in these assessment questions 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 at grades 4, 8, and 12 to participate in the 

assessment. 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, NAEP cannot report school or 

individual student performance results. In fact, the NAEP design 
3

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. 

The Governing Board 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 subjectmatter 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 NAEP Economics Assessment?

The first NAEP Economics Assessment was administered in 2006 to 

a national sample of high school seniors from across the country, with 

various backgrounds and in public and private schools. This 

assessment provided the first opportunity for the nation’s students to 

demonstrate on a nationally administered assessment what they know 

about economics. The second NAEP Economics Assessment was

administered in 2012, and allows NAEP to report performance trends 

compared with the 2006 student performance data.
4

What is the NAEP Economics Framework Development 

Project?

In September 2001, the Governing Board awarded a contract to the 

American Institutes for Research (AIR) to conduct the Economics

Framework Development project. AIR collaborated with the National 

Council on Economic Education (now known as the Council for 

Economic Education) and the Council of Chief State School Officers 

(CCSSO) to develop recommendations to the Governing Board for the 

NAEP 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 the Governing Board 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 four 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. 
5

The timeline for the project follows:

Fall 2001

The Governing Board 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 the Governing Board.

August 2002

The Governing Board took final action on recommendations 

regarding the NAEP Economics Assessment (on the Framework, Specifications, and Background Variables).
6

Chapter 2

Economic Education

conomic 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. Not everyone who 

graduates from high school goes to college and among those who do 

attend college not everyone takes an economics course, so the strongest

opportunity for most students to learn basic economics occurs in high 

school. About 58 percent of high school graduates took an economics

course in 2009, which is up significantly from 44 percent in 2005

(Walstad and Rebeck, forthcoming). This percentage averaged around 

45 percent from 1990 through 2005.

What is the current state of economic education in the 

United States?

On August 8, 2007, NAEP grade 12 results were released in The 

Nation’s Report Card: Economics 2006. This was the first-ever report 

of national results on what students know and can do in economics. 

E
7

See http://nationsreportcard.gov/economics_2006.

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

school curricula has expanded at a steady pace. 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 2009, 59 percent of high school seniors reported they 

had taken a course labeled ―economics‖ (NCES, 2011). 

Forty-nine states and the District of Columbia include economics as 

part of state standards or curriculum guidelines. However, only 28

states require the implementation of economic standards. A total of 19

states test students on economic knowledge. Twenty-one states require 

an economics course prior to graduation (Council for Economic 

Education, 2009).

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 A Framework for Teaching Economics: Basic Concepts 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.

The Council for Economic Education (formerly the National 
8

Council on Economic 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 (the National Council on Economic Education, 1997). 

The second edition of these standards was published in 2010.

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 secondary-school 

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 efforts provide useful 

guidelines for understanding what is important in the elementary and 

secondary economics experience. 

There is even significant variation 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.
9

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.
10

Chapter 3

Content

he 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, decision-making, 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.

T
11

The standards include the principles of economics agreed on and 

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

Content Categories

(Percent of time spent)

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 decision-making) 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. 
13

Table 1. Distribution of standards across content areas

The Market

Economy

The National

Economy

The International 

Economy

Choices and costs (1)

Effective decisionmaking (2)

Incentives (4)

Markets (7)

Prices (8)

Competition (9)

Institutions (10)

Income (13)

Entrepreneurs (14)

Investment, 

productivity, and growth 

(15)

Economic role for 

government (16)

Government decisionmaking (17)

Resource allocation (3)

Money (11)

Interest rates (12)

Investment, productivity, 

and growth (15)

Economic role for 

government (16)

Government decisionmaking (17)

Gross domestic product 

(18)

Unemployment and 

inflation (19)

Fiscal and monetary 

policies (20)

Voluntary exchange 

(5)

Benefits of trade (6)

Markets (7)

Investment, 

productivity, and 

growth (15)

Government decisionmaking (17)

Note: Numbers in parentheses match the numbering system used in the 

Voluntary National Content Standards in Economics.

Economically literate grade 12 students are able to identify what 

trade-offs they face—what they gain and what they give up when 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 
14

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.

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.
15

Standard 2 Effective decision-making

Effective decision-making 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.

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 
16

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.

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.
17

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 

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. 
18

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 well-enforced 

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.

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 
19

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. 

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.
20

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.

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 
21

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 decision-making

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.

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 
22

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.

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.
23

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.

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.
24

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.

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. 
25

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 decision-making

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.

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 
26

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 one 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.

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, 
27

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 one 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.

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 
28

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 of 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.

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.
29

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.

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. 
30

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. 

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 
31

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 decision-making

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 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.
32

Chapter 4

Characteristics of the Assessment

he NAEP Economics Framework 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; and

● 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 

T
33

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)
34

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 

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 decision-making 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 and the types 
35

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.
36

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 and extended 
37

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. Two-variable 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 constructedresponse 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 multiplechoice, 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 constructedresponse 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 
38

short and extended constructed-response items on the assessment. 

● 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 constructedresponse 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 

 

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.
39

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

included in each of the three content areas.

Types of Questions

(Percent of time spent)

See the NAEP Questions Tool at 

http://nces.ed.gov/nationsreportcard/itmrlsx/default.aspx to view 

sample items from the NAEP Economics Assessment.

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 economicspecific 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. 
40

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.

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 
41

―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.‖

Descriptions of Achievement Levels 

The final NAEP Economics achievement level descriptions for 

Basic, Proficient, and Advanced are stated below.

Basic

Students performing at the Basic level of achievement should be 

able to identify and recognize a limited set of economic concepts 

and relationships that are important for partial understanding of 

the market economy, national economy, and international 

economy. A limited set includes some of the following: (a) in the 

market economy—scarcity, opportunity cost, incentives, marginal 

decision-making, markets, prices, demand, supply, competition, 

economic institutions, income determination, entrepreneurship, 

investment, and government actions; (b) in the national 

economy—economic systems, money, interest rates, economic 

growth, gross domestic product, unemployment, inflation, fiscal 

policy, and monetary policy; and (c) in the international 

economy—comparative advantage, the benefits and costs of trade, 

and exchange rates. An example of the level of understanding that 

students should be able to demonstrate at the Basic level is the 

ability to recognize the inverse relationship between the market 

price of a product and the amount buyers are willing and able to 

purchase.

Students should be able to use a limited set of these economic 

concepts and relationships in simple applications. For example, 

when given data or information about an economic event or 

situation, they should be able to identify a likely economic 

outcome. Students should be able to interpret data or information 

presented in simple charts, graphs, or tables, such as those 

showing changes in economic data over time.

Proficient
42

Students performing at the Proficient level of achievement should 

be able to identify and recognize a broader set of economic 

concepts and relationships that are important for solid 

understanding of the market economy, national economy, and 

international economy. A broader set includes many of the 

following: (a) in the market economy—scarcity, opportunity cost, 

incentives, marginal decision-making, markets, prices, demand, 

supply, competition, economic institutions, income determination, 

entrepreneurship, investment, and government actions; (b) in the 

national economy—economic systems, money, interest rates, 

economic growth, gross domestic product, unemployment, 

inflation, fiscal policy, and monetary policy; and (c) in the 

international economy—comparative advantage, the benefits and 

costs of trade, and exchange rates. An example of the level of 

understanding that students should be able to demonstrate at the 

Proficient level is the ability to explain the role of shortages in 

causing market prices to change.

Students should be able to use a broader set of these economic 

concepts and relationships in more challenging applications that 

involve analyzing economic problems and decisions, and 

recommending policies and actions. Students should be able to 

interpret data or information presented in complex charts, graphs, 

or tables, such as those relating changes in one or more economic 

variables to changes in other economic variables, and to analyze 

economic data and information to describe events and trends.

Advanced

Students performing at the Advanced level of achievement should 

be able to identify and recognize an extensive set of economic 

concepts and relationships that are important for thorough 

understanding of the market economy, national economy, and 

international economy. An extensive set includes most of the 

following: (a) in the market economy—scarcity, opportunity cost, 

incentives, marginal decision-making, markets, prices, demand, 

supply, competition, economic institutions, income determination, 

entrepreneurship, investment, and government actions; (b) in the 

national economy—economic systems, money, interest rates, 

economic growth, gross domestic product, unemployment, 
43

inflation, fiscal policy, and monetary policy; and (c) in the 

international economy—comparative advantage, the benefits and 

costs of trade, and exchange rates. An example of the level of 

understanding that students should be able to demonstrate at the 

Advanced level is the ability to identify factors that increase or 

decrease the demand for a product and to explain the effects of 

these changes on price and quantity.

Students should be able to use these economic concepts and 

relationships in complex applications that involve analysis and 

evaluation of economic data and information to explain events 

and their causes, and policies and their outcomes. Students should 

be able to use data or information presented in complex charts, 

graphs, or tables in their analysis and evaluation.
44

Appendix A 

References
45

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.

Council for Economic Education (2009). Survey of the States: 

Economic, Personal Finance and Entrepreneurship Education in Our 

Nation’s Schools in 2009, A Report Card. New York: Council for 

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 (2011). National 

Assessment of Educational Progress (NAEP), 2009 High School 

Transcript Study (HSTS). Washington, D.C.: U.S. Department of Education, Institute of Education Sciences.

Council for 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. and Rebeck, K. (forthcoming). ―Economics Course 

Enrollments in U.S. High Schools.‖ Journal of Economic Education,

43(3).
46

Appendix B

NAEP Economics Framework Project
47

Steering Committee

Members

Robin Bartlett

Professor of Economics

Denison University

Granville, Ohio

Patricia Concannon

Social Studies Consultant

New Mexico State 

Department of Education

Santa Fe, New Mexico

Robert Costrell

Director of Research and 

Development

Executive Office for 

Administration and Finance

The Commonwealth of 

Massachusetts 

Boston, Massachusetts

(on leave from the University 

of Massachusetts-Amherst)

Dara Duguay

Executive Director

Jump$tart Coalition for 

Personal Financial Literacy

Washington, D.C.

Robert Duvall

President and Chief Executive 

Officer

National Council on Economic 

Education (now known as 

Council for Economic Education)

New York, New York

Pete Harder

Consultant (Former 

Senior Vice President –

Education)

Junior Achievement

Colorado Springs, Colorado

Betty Lin-Fisher

Consumer Reporter and 

Columnist

Akron Beacon Journal

Akron, Ohio

Sally Meek

Teacher

Plano West Senior High School

Plano, Texas

Diane Oakley

Vice President

TIAA-CREF

Washington, D.C.

Bill Odom

Former Chairman and Chief 

Executive Officer

Ford Motor Credit Company

Lake City, South Carolina

Dennis Placone

Associate Professor of Economics

Clemson University

Center for Economics Education

Clemson, South Carolina

Gary Stern

President and Chief Executive 

Officer

Federal Reserve Bank of 

Minneapolis

Minneapolis, Minnesota

Bob Troyer

Assistant Principal

West Lafayette Junior-Senior 

High School

West Lafayette, Indiana 
48

Gary Walton

President

Foundation for Teaching 

Economics

Professor of Economics

University of California, Davis

Davis, California

Bob Wynn

Financial Education Officer

Wisconsin Department of 

Financial Institutions

Madison, Wisconsin

Planning Committee

Members

Rosella Bannister

Principal Consultant

Bannister Financial Education 

Services

Ann Arbor, Michigan

Nancy I. Brown

Principal Consultant

Brown & Associates, LLC

Colorado Springs, Colorado

Sterlind S. Burke

Principal

Patuxent Valley Middle School

Jessup, Maryland

Fredrick Czarra

Consultant

Council of Chief State School 

Officers

Washington, D.C.

Marisol Delgado

Teacher

Our Lady of Lourdes Academy

Miami, Florida

Rae Jean B. Goodman

Professor of Economics

United States Naval Academy

Annapolis, Maryland

Daniel Gregg

Social Studies Consultant

Connecticut State Department 

of Education

Bureau of Curriculum and 

Instruction

Hartford, Connecticut

Gail Mitchell Hoyt

Associate Professor of Economics 

University of Kentucky 

College of Business and 

Economics 

Lexington, Kentucky

Joy Joyce

Teacher

Willowbrook High School

Villa Park, Illinois

Don R. Leet

Professor of Economics and 

Director of the Center 

for Economic Education

California State 

University, Fresno

Fresno, California
49

Darrell Luzzo

Senior Vice President – Education 

(Former Vice President for

Education Research, 

Evaluation, and Outreach)

Junior Achievement

Colorado Springs, Colorado

Richard MacDonald

Assistant Professor of 

Economics and Assistant 

Director of the Center 

for Economic Education

St. Cloud State University

St. Cloud, Minnesota

Sarapage McCorkle

Director

Center for Entrepreneurship 

and Economic Education 

University of Missouri-St. Louis

St. Louis, Missouri

Karl Ochi

Teacher

George Washington High School

San Francisco, California

Timothy O’Driscoll

Teacher

Arrowhead High School

Hartland, Wisconsin

Joann Prewitt

Social Studies Assessment 

Specialist

Delaware Department of 

Education

Dover, Delaware

Kathryn Ratté

Consultant in Economic 

Education

Foundation for Teaching 

Economics

Littleton, Colorado

Robert Strom

Teaching and Research Fellow

Ewing Marion Kauffman 

Foundation

Kansas City, Missouri

George M. Vredeveld

Director

Greater Cincinnati Center 

for Economic Education 

University of Cincinnati

Cincinnati, Ohio

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, Ontario
50

Huynh Huynh

Professor of Education and 

Affiliated Professor of 

Statistics

College of Education

University of South Carolina

Columbia, South Carolina

John Olson

Assistant Director

State Education Assessment

Center

Council of Chief State School 

Officers

Washington, D.C.

William (Bill) Walstad

Professor of Economics

University of Nebraska-Lincoln

Department of Economics

Lincoln, Nebraska

Management Team 

Members

Stephen Buckles

Project Associate

Department of Economics

Vanderbilt University

Nashville, Tennessee 

Mary Crovo

Project Officer

National Assessment 

Governing Board

Washington, D.C.

Stephen Klein 

Co-project Director

Co-chair of Steering Committee

American Institutes for Research

Washington, D.C.

Wayne Martin

Co-chair of Steering Committee

Council of Chief State School 

Officers

Washington, D.C.

Claire Melican

Co-chair of Planning Committee

Council for Economic Education

New York, New York

Julia (Judy) Mitchell

Co-project Director

Co-chair of Planning Committee

American Institutes for Research

Palo Alto, California

Scott Oppler

Chair of Technical Advisory 

Panel

Liaison to the Planning Committee

American Institutes for Research

Washington, D.C.

Task Leaders

Daniel Conrad

Web Site Development Task 

Leader and Project Associate

American Institutes for Research

Washington, D.C.

Elizabeth Greenberg

Background Questionnaires Task 

Leader

American Institutes for Research

Washington, D.C.
51

Appendix C 

Steering Committee Charge to the Planning Committee
52

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.

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?
53

● Do they understand the institutions that make up the 

democratic free-market economy?

● 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 constructedresponse).

● 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 
54

● Sources of economic and financial news

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

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

● Time value of money
55

● 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
56

Appendix D

Framework Development Process
57

Framework Development Process

In September 2001, the National Assessment Governing Board 

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 (now known as the Council 

for Economic Education) and the Council of Chief State School 

Officers (CCSSO) to develop recommendations to the Board for the 

NAEP 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 the Governing Board 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 

four 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 website to facilitate 
58

communication and to review documents

● conducting a broad-based national review of the draft 

framework 

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 

spent 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

Website. A project website also was designed to facilitate communication and document review. The website 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.
59

National Review. In addition to being posted on the website 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 

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

shown in the following table.

Venue Place and Date Audience

Midwest Economics

Educators Conference

Federal Reserve Bank

St. Louis, MO

April 11

College and university

professors of economics

AFL-CIO/

United Association for Labor

Education Annual Education

Conference

Wilshire Grand Hotel

Los Angeles, CA 

April 11

Union and nonunion

conference attendees with

an interest in labor education

Meeting of the Wisconsin

Task Force on

Financial Education 

Pyle Center

Madison, WI 

April 11

Governor’s Task Force 

members, 

representing business,

government, education,

foundations, and the

general public

Consumer Education 

Committee of the American

Council on Consumer 

Interests

Places and times of

their choosing

Committee co-chairs

Meeting of various staff at

The Conference Board 

The Conference Board

New York, NY 

May 3

An economist, a research

statistician, two research

librarians, and human

resources and other staff

Spring meeting of the 

Education Information 

Advisory Committee

(EIAC)

DoubleTree Crystal City 

Hotel

Arlington, VA 

May 6

State assessment directors

and various staff and

observers

Meeting of The Conference 

Board’s Business/

Education Council

Willard InterContinental 

Hotel

Washington, DC

May 8

Corporate executives and

education leaders 

Spring conference of the

Illinois Association of 

School Economics

Teachers

Holiday Inn Select

Tinley Park, IL 

May 10

Illinois secondary school

economics teachers and

potential economics

teachers
60

Venue Place and Date Audience

National Summit on 

Economic and Financial 

Literacy 

National Press Club

Washington, DC

May 14

Business people,

academics, Council for 

Economic Education

(CEE) directors, 

and the general public

CEE/

Goldman Sachs Foundation 

Economic Challenge 

High School of Economics

and Finance

New York, NY 

May 19

Secondary school 

economics students (both

regular and Advanced

Placement) and their teachers

The timeline for the project was as follows:

● Fall 2001 – The Board 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 

Board’s 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 the Board.

● August 2002 – The Board took final action on recommendations 

regarding the NAEP Economics Assessment on the Framework, 

Specifications, and Background Variables.
61

Appendix E

Acknowledgments
62

Acknowledgments

Stephen Buckles, Vanderbilt University, and Claire Melican, 

Council for Economic Education, prepared this document, with major 

contributions from the members of the Steering Committee, the 

Planning Committee, and the NAEP Economics Assessment 

Management Team.