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Do Americans kids know anything about economics?

Written By: Jason Shafrin - Aug• 09•07

In 2006, the National Assessment of Educational Progress (NAEP) conducted its periodic assessment of the quality of American high school students. What is unique about the 2006 “Nation’s Report Card” was that it was the first time that high school students were tested regarding the subject of economics. How did they do? Well, it depends on who you ask.

Since this is the first year the test has been conducted, no one is really sure how the students did. One can not compare the results to previous years’ totals.

What questions were the students asked? You can try out a few of the sample questions yourself.

  • What happens to most of the money deposited in checking accounts at a commercial bank?
    1. It is used to pay the bank’s expenses.
    2. It is loaned to other bank customers.
    3. It is kept in the bank’s vault until depositors withdraw the funds
    4. It is paid to the owners of the bank as return on their investment.
  • Suppose that the federal government initially has a balanced budget. Which of the following changes in government tax revenues and expenditures over time will definitely lead to an increase in the national debt?
    1. Tax increase, no change in Expenditures
    2. Tax increase, decrease Expenditures
    3. Tax decrease, increase Expenditures
    4. No change in Taxes, decrease Expenditures
  • In the United States, which of the following forms of taxation currently represents the largest source of tax revenue for the federal government?
    1. Property Tax
    2. Sales Tax
    3. Corporate Income Tax
    4. Personal Income Tax
  • Two countries are currently trading with each other. The countries agree to remove all trade restrictions on products traded between them. Which of the following is most likely to decrease?
    1. The variety of goods available
    2. The price of imported goods
    3. The quality of goods available
    4. The amount of imported goods


b, c, d, b.

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  1. Ian says:

    Why the FairTax (H.R. 25 / S. 1025) Act must become Law:

    While many who are invested in the current income tax system seek to demagog the well-researched FairTax plan (*), its acceptance in the professional / academic community continues to grow (**). Failure to enact the FairTax – choosing instead to try to “flatten” a NON-FLATTENABLE income tax system – will result in an irrevocable economic meltdown. (*** Impossible, you say?)

    Here is why the FairTax MUST replace the income tax. It’s:

    • SIMPLE, easy to understand
    • EFFICIENT, inexpensive to comply with and doesn’t cause less-than-optimal business decisions for tax minimization purposes
    • FAIR, loophole free and everyone pays their share
    • LOW TAX RATE, achieved by broad base with no exclusions
    • PREDICTABLE, doesn’t change, so financial planning is possible
    • UNINTRUSIVE, doesn’t intrude into our personal affairs or limit our liberty
    • VISIBLE, not hidden from the public in tax-inflated prices or otherwise
    • PRODUCTIVE, rewards, rather than penalizes, work and productivity

    Its benefits are as follows:

    • No more tax on income – make as much as you wish
    • You receive your full paycheck – no more deductions
    • You pay the tax when you buy “at retail” – not “used”
    • No more double taxation (e.g. like on current Capital Gains)
    • Reduction of “pre-FairTaxed” retail prices by 20%-30%
    • Adding back 29.9% FairTax maintains current price levels
    • FairTax would constitute 23% portion of new prices
    • Every household receives a monthly check, or “pre-bate”
    • “Prebate” is “advance payback” for monthly consumption to poverty level
    • FairTax’s “prebate” ensures progressivity, poverty protection
    • Finally, citizens are knowledgeable of what their tax IS
    • Elimination of “parasitic” Income Tax industry
    • Those possessing illicit forms of income will ALSO pay the FairTax
    • Households have more disposable income to purchase goods
    • Savings is bolstered with reduction of interest rates

    • Corporate income and payroll taxes revoked under FairTax
    • Business compensated for collecting tax at “cash register”
    • No more tax-related lawyers, lobbyists on company payrolls
    • No more embedded (hidden) income/payroll taxes in prices
    • Reduced costs. Competition – not tax policy – drives prices
    • Off-shore “tax haven” headquarters can now return to U.S
    • No more “favors” from politicians at expense of taxpayers
    • Resources go to R&D and study of competition – not taxes
    • Marketplace distortions eliminated for fair competition
    • US exports increase their share of foreign markets

    • 7% – 13% economic growth projected in the first year of the FairTax
    • Jobs return to the U.S.
    • Foreign corporations “set up shop” in the U.S.
    • Tax system trends are corrected to “enlarge the pie”
    • Larger economic “pie,” means thinner tax rate “slices”
    • Initial 23% portion of price is pressured downward as “pie” increases
    • No more “closed door” tax deals by politicians and business
    • FairTax sets new global standard. Other countries will follow

    (*) http://snipurl.com/taxpanelrebutted (.pdf)

    (**) http://snipurl.com/econsopenletter (Lists every tax that FairTax will eliminate, together with the power they represent to pol’s and lobbyists.)

    (***) Listen to an interview where Prof. Kotlikoff elaborates: http://snipurl.com/meltdowninprogress

    The time for sitting around, pontificating, is over. We have NO CHOICE but to ACT: http://snipr.com/scrapthecode