American Journal of Business

Assessing Economic Literacy of Indian MBA Students

Rajindar K. Koshal Ashok K. Gupta Anita Goyal Vimal Navin Choudhary
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 Assessing Economic Literacy of Indian MBA Students

Rajindar K. Koshal, Ohio University

Ashok K. Gupta, Ohio University
Anita Goyal, Management Development Institute
Vimal Navin Choudhary, Lal Bahadur Shastri Institute of Management and Technology

Abstract
Acquiring economic literacy is not only important so that citizens may hold politi-
cians accountable, ensuring a vibrant and effective democratic system, it is also nec-
essary for business managers in order to attain effective organizational performance
and compete in the complex global markets. Using a sample of 494 students, this
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study assesses the economic literacy of Indian MBA students. Several areas of
alarming deficiencies are observed. Factors that influence the level of economic
literacy are also investigated.

Keywords: Economic literacy, economic interdependence, student performance

Need for Economic
Literacy
The economy affects everything we
do. We are all amateur economists at
work or at home. Scarcity is a fact of life,
and economics is about understanding
choices and making trade-offs among
scarce resources (Dahl 1998). Real life
is about economics. “It is about find-
ing a job, surviving a recession, battling
inflation, saving for retirement, and
investing in a mutual fund or playing
the stock market” (Buchholz 1998).
Farrell (1999) argues that “the case for
economic literacy is compelling to the
extent that it helps people navigate
better through this world. Economics
offers insights into the issues that affect
us as workers, consumers, savers, inves-
tors, and voters. For example, econo-
mists have something to say about the
forces behind inflation and recessions,
the direction of interest rates and stock
prices, and the benefits and costs of
international commerce.” Gary Stern,
president of the Minneapolis Fed, put
it this way: “Economic literacy is cru-
cial because it is a measure of whether
people can understand the forces that
significantly affect the quality of their
lives” (Farrell 1999). Similarly, Caplan
(2001 and 2002) indicates that in a
democracy, “intelligent policies would
be unlikely to emerge if a large fraction
of voters suffered from economic illiter-
acy,” as “the primary activity of modern
governments is to determine economic
policies: which services the government
supplies itself and which it leaves to pri-
vate markets, how open the economy
is to foreign trade, what regulations to
impose.”
Unfortunately, a large proportion of
voters suffers from economic illiteracy
and has misconceptions about why
prices change, blames foreigners for
their economic troubles, finds it difficult
to decide if free-trade is good, consid-
ers that technological advances lead to
unemployment and misunderstands the
cost-benefits of outsourcing or organi-
zational downsizing. Economically
illiterate citizens are likely to feel com-
pletely left out of any public debate and
conversation about the economy. They
are confused about economic forces
and how decisions are going to affect
them, what questions to ask, where
to seek answers or which way to vote.
An economically illiterate public can
be bullied by politicians (Gupta 2006).
Arthur Levitt, former chairman of the
American Stock Exchange lamented
on the economic literacy of Americans
by saying, “The American economy is
the eighth wonder of the world; the
ninth wonder is the economic igno-
rance of American people.” (Quote
from http://www.econ4u.org/problem.
cfm). An economically literate citizen
should be able to understand, discuss
and form opinions on issues such as the
record high trade deficit, public support
of trade barriers or economists’ support
of open borders even though our trade
deficit is increasing. Further confusion is
added by issues such as: Why are cable
television fees increasing while the price
of using cellular phones is decreasing?
Is a college education still a worthwhile
investment with students taking on
more debt in the 1990s to earn a diploma
than they did in the 1960s, 1970s, and
1980s combined? Where does growth

Fall 2008 • Vol. 23, No. 2 43

 Koshal, Gupta, Goyal and Choudhary
come from? Why are some people rich
and others poor? Does trade with other
nations do more harm or good? Why
is it that the economy sometimes slows
and people lose jobs, and what can be
done to bring unemployment down and
living standards up? Will an increase
in the minimum wage lead to greater
unemployment? How can we finance
and administer the Medicare program,
so that it provides adequate coverage at
containable cost?
Gupta (2006) enumerates several
reasons why the need to acquire greater
economic literacy is increasing rather
than decreasing. If acquiring economic
literacy is important so that citizens may
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hold politicians accountable thereby
ensuring a vibrant and effective demo-
cratic system, the same should be true
for business managers in order to attain
effective organizational performance
and compete in complex global mar-
kets. After all, economics is the mother
of business.
In the recent Business Week Online
(2007) article, “Business Education
Under the Microscope,” a growing lit-
erature is cited “expressing skepticism
about the direction in which business
schools are headed and the purported
value of an MBA degree.” The article
quotes Judy Olian, Dean, UCLA, say-
ing that about 39 percent of fortune
500 CEOs are business graduates. How
does the performance of businesses run
by CEOs who have an MBA com-
pare to those that do not? AACSB has
launched a study to assess the impact
of business education on business and
economic development. There is a great
deal of talk about “re-inventing” busi-
ness education. Hall (2008) argues “that
business schools are responding by ren-
dering themselves materially and dis-
cursively mobile at both the MBA cur-
ricula and institutional level, adopting a
range of initiatives aimed at reposition-
ing themselves closer to economic prac-
tice.” An article in the Economist (2005)
argued that top business schools are
striving for academic excellence, which
has made them rely heavily on economic
theories that “a good MBA degree can
44 Fall 2008 • Vol. 23, No. 2
help provide a student with analytical
skills and theoretical knowledge useful
to a business career.” A significant part
of this theoretical knowledge is derived
from economic principles. Therefore,
one would expect MBA students to
exhibit a greater level of economic lit-
eracy compared to the general public.
“Economically illiterate citizens are likely to feel com-
pletely left out of any public debate and conversation
about the economy.”
Focus of Current Research
Most of the studies on economic lit-
eracy have been conducted in the US.
Because citizens’ understanding of eco-
nomic principles is important for the
economic development in a democratic
nation, it is necessary to know how
economically literate various trading
partners of the US are. Unfortunately,
little is known about the economic lit-
eracy of the largest democratic nation
on Earth – India. As per the CIA Fact-
book (2008), the overall literacy rate in
India is 61 percent (defined as percent-
age of population age 15 and over that
can read and write) with a significant
difference in male (73.4%) and female
(47.8%). There are no studies on the
economic literacy of the Indian general
public; however, with such low overall
literacy rates, the economic literacy rates
are likely to be even lower.
In the last ten years, the Indian
economy has posted an average growth
rate of more than 7 percent. India
achieved 8.5 percent GDP growth in
2006, and again in 2007, thereby sig-
nificantly improving its standing in
the world economy. India has become
a major exporter of software services
and software workers by capitalizing
on its large number of well-educated
people. The United States is one of
the largest trading partners of India.
India’s 17 percent of $150.8 billion
exports go to the US and 6 percent of
India’s $230.2 billion imports come
from the US (CIA 2008). Economic
interdependence of India and the US
is significant and a better understand-
ing of economic principles and theories
among the business leaders is likely to
be of value in further enhancing their
trade relationships. Recent comments
by the US Administration on how
India’s growing demand for food is
contributing to spiraling global food
prices is an example of poor economic
literacy that hinders relations between
the two largest democratic nations in
the world (Krishnaswami 2008).
The focus of this paper is to assess
economic literacy of MBA students in
India as the business leaders of tomor-
row who need to understand basic
economic concepts including how a
market economy works.
Assessing Economic
Literacy
What is economic literacy? Rivlin
(1999) suggests economic literacy “as
a rudimentary working knowledge
of the concepts and language of eco-
nomic activity and economic policy,
rather than the language of econom-
ics.” He continues, “The word econom-
ics suggests the academic discipline
taught in colleges and universities. That
discipline, I am afraid, has become so
abstract, so obsessed with mathemati-
cal modeling of an unreal world that it
frequently does not have obvious rel-
evance to what average citizens need
to understand about economic activ-
ity and economic policy choices.” In
this paper, we have adopted Rivilin’s
view of economic literacy. Two major
instruments have been developed to
assess economic literacy. First, the Test
of Economic Literacy (TEL) consisting
of forty questions was developed by the
Joint Council on Economic Education.
The second, The Standards in Econom-
ics Survey developed by the National
Council on Economic Education con-
sists of twenty questions. Both instru-
ments have been widely used (Gleason

and van Scyoc 1995; National Council
on Economic Education 2005; Wood
and Doyle 2002). In this study we used
a combination of both instruments to
assess economic literacy.
Review of Literature
A 2005 National Council on Eco-
nomic Education survey of 3,512 U.S.
adults aged 18 years or older by Harris
Associates found that 62 percent con-
sider it very important and 35 percent
somewhat important to have a “good
understanding of economics.” However,
based on a twenty-four question quiz,
adults scored an average of 70 percent
(“C” grade) for their knowledge of eco-
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nomics and personal finance and 28
percent of adults got an “F.”
Volpe, Chen, and Pavlicko (1996),
using survey data from a college,
attempted to evaluate students’ knowl-
edge of personal investment and the
relationship between investment lit-
eracy and gender, academic discipline,
and experience. Their analysis suggests
that college students have inadequate
knowledge of personal investment
basics. Furthermore, the problem cuts
across a broad spectrum of the par-
ticipating students with women and
non-business majors earning the low-
est scores. The findings suggest that the
investment illiteracy among college stu-
dents must be addressed. Tennyson and
Nguyen (2001) examined the question
of the relationship between high school
students’ scores on a test of personal
financial literacy and their state’s per-
sonal finance curriculum mandate. Their
analysis shows that curriculum man-
dates, broadly defined, are not generally
associated with higher student scores.
But, students in states that required
specific financial education coursework
scored significantly higher than those in
states with either a general mandate or
with no mandate.
Walstad and Rebeck (2001) wanted
to explore the question of whether
seminars for teachers conducted by the
National Council on Economic Educa-
tion through its International Educa-
tion Exchange Program (IEEP) had
any beneficial effect on the economic
understanding of the high school stu-
dents of these teachers. Their interesting
findings show a larger increase in the
economic understanding of students of
teachers who participated in the IEEP
seminars when compared to students
whose teachers did not participate.
Moreover, their results suggested that
knowledge of economics among IEEP
teachers was a factor for improving stu-
dent achievement in economics. They
also tested the hypothesis that older
students, who can handle abstract sub-
ject matter better, should do better on
TEL as compared to younger students.
“Economic interdependence of India and the US is
significant and a better understanding of economic
principles and theories among the business leaders is
likely to be of value in further enhancing their trade
relationships.”
Does taking a course in economics,
whether at the high school or college
level, have any impact on increasing eco-
nomic literacy? Gleason and van Scyoc
(1995) found that adults who had an
economics course in high school scored
statistically the same as adults who had
no economics education in high school
as measured by the Test of Economic Lit-
eracy (TEL). Using a random sample of
300 college seniors, Walstad and All-
good (1999) found that, on a fifteen-
question economics knowledge–based
test, students who had taken an eco-
nomics course in college scored only
62 percent. Using data of students who
participated in the national TEL, Wals-
tad and Rebeck (2001), concluded that
no single test can capture high school
students’ knowledge about economics.
In addition, they found that students
that completed a separate course in
high-school economics did show bet-
ter knowledge of economics than those
who did not. On the basis of their find-
ings they further recommended that
high-school graduates, whether bound
for the job market or college, should
take a course in economics.
Koshal, Gupta, Goyal and Choudhary
Leiser and Drori (2005) presented a
questionnaire to four groups of people
occupying different positions in the
economic world: students in psychol-
ogy, technical high school students, gro-
cers, and school teachers in an effort to
identify commonalties and differences
in their concept of inflation. Their sta-
tistical analysis of the answers of these
groups indicate that the core of the social
representation is nearly identical across
the groups, and at variance with the con-
cept held by professional economists. To
examine the correlation between quan-
titative literacy, economic literacy and
economic learning of college students,
Schuhmann, McGoldrick, and Burrus
(2005), conducted a test during the first
and final day of class at four institutions
in the United States. Their overall con-
clusion is that students do not do well
on simple quantitative questions, and
therefore do not possess an adequate
working knowledge of the “language”
used in economics classes. Their analysis
also suggests that quantitative literacy is
an important determinant of economic
literacy in both the pre and post course
survey. To learn economics, it is impor-
tant for students to know how to solve a
system of equations and compute a per-
centage. Equally important is the ability
to interpret increases and decreases on a
graph. Therefore, MBA students should
do better than the general public on a
test of economic literacy.
Walstad and Larsen (1992) found
that the general adult public scored on
average 39 percent while college seniors
scored 51 percent on a test of economic
literacy. Similarly, Gable (1971) and Bar-
low and Kaufman (1975) found that
top-managers had better understanding
of economic concepts than lower-level
managers.Therefore, it appears that expe-
Fall 2008 • Vol. 23, No. 2 45
 Koshal, Gupta, Goyal and Choudhary

rience and education have a positive rela- Figure 1

tionship with economic literacy. Caplan Respondent Profile
(2001 and 2002) argues that “the more
Total Sample Size: 494
educated otherwise similar individuals
Average Age: 22.91 Years
are, the more inclined they are to agree Average Work Experience: 0.511 Years
with the economic beliefs of professional
economists.” We should therefore expect Students from Business Schools Students Who Did/Did Not Study
second-year MBA students to be more Economics as an Undergraduate
economically literate than the first-year
students. Caplan (2001 and 2002) also
provides research evidence to show that Top Business
males are generally more economically Schools Other
Business Students Students
literate than females. “It often happens 38% (187) Who Did Not Who Did 52%
Schools
that one gender knows more about a 62% (307) 48%
field than the other. Economics is one of
those fields. But political literacy fits the
same pattern: Men significantly outper-
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form equally educated women on tests Gender Year in MBA Program

of political knowledge. But part of the
gender gap probably arises simply due to
selective curiosity: The average man nor-
mally finds politics and economics more Female
34% Second-Year First-Year
intrinsically interesting than the average
MBA Student MBA Student
woman.” Male 46% 54%
66%
Research Methodology
An economic literacy assessment
questionnaire was developed combin-
ing all questions from The Standards Educational Background Major Area of Study
in Economics Survey developed by the Arts Other
National Council of Economic Educa- Other 6% 11%
tion (1999 and 2005) and thirteen items 10%
Business/
from TEL used by the Federal Reserve Science Commerce
Bank of Minneapolis, which provides a 11% 37% Marketing
36% Finance
general measure of the US public’s eco- 53%
nomic literacy. One question, “Which Engineering
37%
one of the following statements about
the function of money is wrong?” was
deleted from further analysis as stu-
dents found it confusing. In sum, a set
of thirty-seven questions were used to educational background, and whether the Indian MBA students was 64.1
assess economic literacy. a course in economics was taken as an percent; lower than the overall aver-
Data for this study were collected undergraduate were also collected. Fig- age score of 70 percent in the National
from a survey of students in five different ure 1 provides respondent profile. Council on Economic Education sur-
institutions that provide MBA education vey of 3,512 U.S. adults aged 18 or
in India. This included two prestigious Findings on more by Harris Associates (2005). This
institutions (among the top 10 business Economic Literacy variance should be of great concern to
schools in India as ranked by Business The overall average economic lit- business schools in India as many of
India, 2007) and three other institutions. eracy score among MBA students was these graduates compete for limited
Completed questionnaires were received 64.1 percent (24 questions correctly slots for higher education abroad. Also,
from 494 students. Based on the litera- answered out of 37 questions) with a limited understanding of economic
ture review, demographic information on minimum score of 13.5 percent and principles and theories will put Indian
age, gender, work experience, year in the maximum of 97.3 percent (Figure 2). business professionals at a competitive
MBA program, major, undergraduate The overall economic literacy score for disadvantage in making sound busi-

46 Fall 2008 • Vol. 23, No. 2


Figure 2
Student Economic Literacy Scores by Demographic Groups
Total Sample: 64.1%
Students from Business Schools
Top Business Schools
64.1%
Other Business Schools
55.9%
Gender
Male
65.6%
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Female
61.0%
Educational Background
Business/Commerce
61.3%
Engineering
70.7%
Science
56.8%
Other
59.3%
Arts
58.7%
ness decisions in a complex global
marketplace.
Differences in economic literacy
scores on various demographic variables
are presented in Figure 2. MBA students
from prestigious business schools have
significantly higher economic literacy
scores than their counterparts from
other business schools. Males, students
with engineering backgrounds and
finance majors had scores significantly
higher than females, arts/commerce/
other backgrounds, and other majors
(all differences significant at 0.05 level).
No significant difference in scores were
observed between first- and second-
year MBA students. Interestingly, those
MBA students who had at least one
economics course in their undergradu-
ate program scored significantly lower
than those who did not have a course.
Students Who Did/Did Not Study
Economics as an Undergraduate
Students Who Did
62.0%
Students Who Did Not
65.8%
Year in MBA Program
First-Year MBA Student
63.6%
Second-Year MBA Student
64.6%
Major Area of Study
Finance
62.7%
Marketing
62.7%
Other
59.0%
Perhaps the ideas conveyed in the eco-
nomics course students took were too
theoretical and did not prepare them for
the “rudimentary working knowledge
of the concepts and language of eco-
nomic activity” (Rivlin 1999) we were
measuring through economic literacy
questionnaire.
To further understand areas in which
Indian MBA students were stronger
or weaker, all questions on economic
concepts are listed in the Appendix
along with the percentage of students
who correctly answered each ques-
tion. Results of Indian MBA students
are also compared with the US general
public. Students seem to have a good
understanding of theoretical principles
but not of practical issues. Also, it is
noted that demand and pricing issues
are not very clear to students. Students
Koshal, Gupta, Goyal and Choudhary
were especially weak in understanding
what keeps the market economy going
and basic concepts of personal savings
and investment issues. Some alarming
findings include:
• When asked “which has the great-
est risk of losing value due to infla-
tion: cash under a mattress, stocks
or mutual funds,” only 58 percent of
the MBA students could choose the
correct answer.
• Only 53 percent of students could
say what would happen if govern-
ment mandates a minimum wage
above what employers currently
pay.
• Only 46 percent of the MBA stu-
dents could say that people prefer
to buy mutual funds rather than
individual stocks because generally
mutual funds provide more diversi-
fication than individual stocks.
• Only 36 percent of the MBA stu-
dents could identify that govern-
ment should decrease both spend-
ing and money supply to reduce
inflation.
• Only 24 percent of the MBA stu-
dents could correctly identify how
much more on average college
graduates earn over the high school
graduates.
Factors Influencing
Economic Literacy
To study the demographic factors
that influence MBA students’ economic
literacy scores, we developed a regression
model. We hypothesized that an indi-
vidual’s economic literacy score (ELS)
is a function of age (AGE), experience
(EXP), gender (GEN), undergradu-
ate major (UMAJ), MBA class rank
(RANK), MBA declared concentration
(MCON), and prestige of the college
(COLL) where the student attends.
The relationship may be stated as:
ELS = F {AGE, EXP, GEN, UMAJ,
RANK, MCON, COLL}
Specifically, we assume that the rela-
tionship is linear in nature and may be
written as follows:
Fall 2008 • Vol. 23, No. 2 47
 Koshal, Gupta, Goyal and Choudhary

ELS= a + b1AGE + b2EXP + b3GEN Table 1

+ b4UMAJ + b5RANK + b6MCON Factors Influencing Economic Literacy Score
+ b7COLL + Error … (1)
Dependent Variable: Economic Literacy Score (ELS)
where for a student, ELS is the per- Independent
Regression Coefficients (t-values)
centage score of correct answers, AGE Variables
is the age of respondent in years, and Model 1 Model 2 Model 3
EXP is the working experience in num- Intercept 47.56 (3.30)* -376.28 (2.83)* -370.87 (2.82)*
ber of years.
AGE 0.24 (0.38) 36.97 (3.22)* 36.5342 (3.21)*
Because GEN, UMAJ, RANK, AGE2 — -0.79 (3.21)* -0.78 (3.19)*
MCON and COLL are categorical EXP 0.21 (0.20) -1.93 (0.97) -2.03 (1.03)
variables in our model, we measure their
EXP 2
— 1.20 (2.00)** 1.20 (2.00)**
effect by creating dummy variables as
follows: GEN takes a value of one for GEN 0.48 (0.30) 0.88 (0.56) —
a male student and a value of zero for a UMAJ 2.10 (1.27) 2.36 (1.43) 2.49 (1.55)***
female student. In the survey we divided RANK 0.47 (0.30) 0.34 (0.22) —
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the undergraduate degree major of stu-

dents (UMAJ) into two categories;
business and others that include subject
like arts, engineering, and science. Since
undergraduate major (UMAJ) is a
qualitative variable, we create a dummy
variable that takes a value of one if the
degree is in business, otherwise it takes
a value of zero. RANK takes a value of
one if student is in the second year of the
MBA, otherwise it takes a value of zero.
Broadly speaking, there are two types of
institutions that offer MBA degrees in
India. One includes institutions consid-
ered prestigious that give preference to
students who not only score high marks
on a national admission test but also
have some work experience. The other
type of institutions admit the remaining
students. Thus, we create a dummy vari-
able, COLL, that takes a value of one
if the student studies at the prestigious
institution and zero otherwise.
Using the study data, multiple linear
regression coefficients in the model are
estimated. The results of this analysis
are summarized in Table 1 as Model
1. Statistically, the overall fit is signifi-
cant and estimated Adj-R2 implies that
more than 30 percent of variations in
the Economic Literacy Score (ELS)
are explained by the Model. However,
only coefficient of intercept, MCON
and COLL are statically significant.
Yamada et al (2004) suggested that age
and experience generally have non-lin-
ear relation with earnings and learn-
MCON 3.08 (2.08)**
COLL 21.90 (12.34)*
R2
0.3086
Adj- R 2
0.2986
F- Ratio 26.97*
* Significance p<0.10 ** Significance p<0.05 ***Significance p<0.01
ing. Accordingly, we include AGE2 and
EXP2 in Model 1 to create Model 2.
The results of re-estimation of regres-
sion coefficients are presented as Model
2 in Table 1. The results of Model 2
show improvement in the Adj-R2. Fur-
thermore, in addition to the previous
significant variables, AGE, AGE2 and
EXP2 variables are also statistically sig-
nificant. UMAJ is also statistically sig-
nificant at least at the 15 percent level.
Next we drop variables GEN and
RANK, which are statistically insignifi-
cant variables from Model 2 to create
Model 3. These results of regression
coefficients are summarized as Model
3 in Table 1. Statistically speaking, the
results of Model 3 are significantly bet-
ter than Model 1 or Model 2. Adj-R2
have higher values and F-ratio also
shows a similar improvement.
From Model 3, the marginal rate of
increase in Economic Literacy Score
(ELS) with respect to AGE is given by:
d(ELS)/d(AGE) =
36.5342 – 1.5654 x Age
3.22 (2.19)** 3.22 (2.22)**
21.47 (11.96)* 21.40 (11.97)*
0.3239 0.3234
0.3113 0.3136
25.66* 33.05*
Thus according to Equation (2), the
economic literacy of an MBA student
increases with age but at a decreasing
rate. Using Model 3 and all variables
except AGE we simulate values of ELS
with respect to AGE variations given in
the sample data. For visual understand-
ing we provide this relationship in Fig-
ure 3.
The economic literacy (ELS) mar-
ginal rate with respect to experience
(EXP) is given by the following Equa-
tion (5):
d(ELS)/d(EXP) =
-2.0297 + 2.3961 x EXP (3)
In contrast to AGE, the marginal
rate of economic literacy (ELS) with
respect to experience (EXP) increases
at an increasing rate. This suggests that
gains in economic literacy are acceler-
ated by experience. For visual under-
standing, we simulate values of ELS
with respect to EXP in the range given
in the sample data and provide this rela-
(2) tionship in Figure 4.

48 Fall 2008 • Vol. 23, No. 2


Figure 3
Economic Literacy and Age
 
Prestigious Institutions
Economic Literacy Score
Economic Literacy Score
%
Other Institutions
#
!
 
 
   !    !
Age
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We also simulate the values of eco-
nomic literacy using the joint contribu-
tion of age and experience. The result of
this simulation is provided in Figure 5.
An examination of this graph sug-
gests that overall economic literacy
increases with age and experience but at
a slower rate.
Regarding undergraduate majors, the
statistical results of Model 3 imply that
on average a student whose undergradu-
ate major is business has 2.49 percentage
points higher economic literacy, other
things being equal.
According to our estimated results of
Model 3, MBA students who declared
a finance concentration, scored on the
average 3.22 percentage points more than
other students, cetris paribus. Another
interesting finding from Model 3 con-
cerns the students at prestigious MBA
institutions. According to our estimated
results, other things being equal, a student
in such an institution has 21.40 percent-
age points higher economic literacy than
a student in another type of institution.
This is a large difference when one con-
siders the average economic literacy in
our sample is 64.1 percentage points.
At the same time, the range of values in
the sample for economic literacy is quite
wide, 13.5 to 97.3 percentage points.
Conclusions
The United States is one of the larg-
est trading partners of India. As the
Figure 4
Economic Literacy and Experience
Prestigious Institutions
Economic Literacy Score
%
Other Institutions
#
!
" #
Years Experience
Indian economy grows, the economic
interdependence of the two largest
democracies in the world will gain fur-
ther significance. A better understand-
ing of economic principles and theories
among the business leaders is likely to
be of value in enhancing their trade
relationships. Not only is it important
to understand the economic literacy of
business students who will be future
business leaders in India, it is also impor-
tant to develop a similar understand-
ing of our major trade partners such
as China. In addition, the economic
literacy of US business students should
be assessed and compared with that of
MBA students in other countries.
Using a sample of 494 students from
five different institutions, we examined
factors that influence economic literacy
scores of MBA students in India.We first
conclude that neither gender nor MBA
class rank has a significant influence on
economic literacy of MBA students.
Second, age has a nonlinear relation-
ship with economic literacy. According
to our results, economic literacy first
increases with age, but at a decreasing
rate. Third, economic literacy has a non-
linear relationship with experience. The
estimated results suggest that economic
literacy of MBA students increases with
experience at an increasing rate. Fourth,
our results show that, on the average,
students with undergraduate majors in
business score 2.49 percentage points
Koshal, Gupta, Goyal and Choudhary
Figure 5
Economic Literacy, Age, and Experience

Prestigious Institutions
%
Other Institutions
#
!


Combination of
Age and Experience
higher in economic literacy compared
to other majors. In addition, MBA stu-
dents who declare their concentration
as finance score 3.22 percentage points
higher in economic literacy. Also, on the
average, students enrolled in prestigious
business schools score 21.4 percentage
points higher than students enrolled
in other institutions. Finally, we would
caution that our results are only based
on five MBA degree granting institu-
tions; therefore, these results should
be used with limitations. The study
highlights several areas where students’
understanding of economic principles is
alarmingly poor. Educators may like to
take note of these findings in revising
business school curriculum.
References
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Yamada, Y., R. Koshal, S. Miyazima and M.
About the Authors
Rajindar K. Koshal is Professor Emeritus
of Economics at Ohio University. Prior to
his academic career, he worked in the Plan-
ning Commission of India. He has widely
published on various topics in business
and economics including economics of
education.
Ashok K. Gupta is Professor of Mar-
keting in the College of Business at Ohio
University. He has published in the areas
of new product development and business
education.
Anita Goyal is Associate Professor of
Marketing and Marketing Area Chairper-
son at Management Development Insti-
tute, in Gurgaon, India. She has 13 years
of experience in academics after being a
year in industry. Her primary interest areas
are strategic marketing, services market-
ing, product marketing management and
consumer behavior. She has exposure of
teaching and supervising dissertations at
International level. She has done consul-
tancy projects with UNICEF and SPMCIL,
published research papers in journals of
international repute, guest edited an issue
of Vision (Journal of MDI) and guided
Ph.D. students. MDI, Gurgaon where she is
presently working, is ranked among the top
five business schools in India.
Vimal Navin Choudhry is an Associate
Professor of Management at Lal Bahadur
Shastri Institute of Management & Technol-
ogy, in Bareilly, India. He is a Gold Medal-
ist in M.Sc. (statistics), M.A. (economics),
MCA & Ph.D. in statistics. He has more
than 14 years of experience of teaching
BBA and MBA students in management.
He has authored a number of research
articles and is actively engaged in consul-
tancy in marketing research. He is a visiting
faculty in a number of prestigious universi-
ties like IGNOU, Kumaun University, MJP
Rohilkhand University etc. and has advised
a number of doctoral students. He has
authored a book on sampling techniques.

50 Fall 2008 • Vol. 23, No. 2

 Appendix
Understanding of Economic Concepts
Percentage Who
Answered
Correctly
MBA US
Economic Concept
Students Public*
Characteristic of Market Economy
b Why may not private businesses operate a lighthouse? 50 40
b How public interest is served in a market economy, where individuals pursue their own self-interest. 52 45
b Why do professional sports players generally earn more than farmers and steelworkers? 55 28
a What would happen to price and quality if a large number of fast-food restaurants come up in a community? 64 34
In a market economy, who determines what goods and services should be produced? 73 73
b What is the key characteristic of a market economy? 77 66
When a person rents an apartment, who benefits: renter, landlord or both? 84 64
Trade Between Nations
b What happens when countries specialize in producing certain goods or services? 65 50
b Who gains when one country trades wheat for oil with another country? 66 70
Will consumers or producers benefit if a country puts a ban on importing product X? 84 89
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Employment
On average, how much more do college graduates earn over high school graduates? 24 16
b What would happen to employment if government mandates a minimum wage above what employers currently pay? 54 46
Government Control/Role
b What can government do to reduce inflation? 36 30
What would happen, if city government sets an upper limit on rent landlords can charge? 57 65
a Who benefits from the products/services provided by governments? 63 36
In a given year, the government’s expenditure is greater than its revenue. What is the difference called? 78 73
Demand/Price
What would happen if currency of a country appreciates in relationship with its trading partner? 63 67
If price of a substitute rises what would happen to the consumption of the other product? 71 86
What would be the impact on price if supply of a product cannot keep up with the demand? 79 81
b Would you be better/worse off if your income rises less than the inflation? 80 90
What would be the impact on price and demand of a product if its production cost increases? 82 88
From economic point of view, how do you decide which of the two items to purchase? 87 93
Production/Output
b When a country’s people and other resources are fully employed, what must happen to increase production of any item? 37 19
b Which approach would make the best use of a country’s resources to control pollution? 44 38
b What factors limit an economy’s potential output? 51 24
What would happen to the production of services, if GDP of a country has increased, but the production of goods has remain unchanged? 65 42
Because resources available for the production of goods and services are limited, what must society do? 71 65
b What is fundamental objective/purpose of economics? 79 28
What factors are likely to accelerate innovation in an industry? 84 84
What do you call a person who starts a business to produce a new product? 90 96
Savings/Investments
Why should someone prefer mutual funds over stocks? 46 44
What is the cost of borrowing money? 53 89
Which has the greatest risk of losing value due to inflation: cash under a mattress, stocks or mutual funds? 58 52
Who are likely to benefit most from inflation? 60 57
a What is the impact of increase in interest rate banks charge on loans to people? 73 59
What is the impact on businesses if banks reduce the interest rates on loans to them? 77 65
What is the role of stock market? 78 74

* Unless noted, the US public data is from 2005, Harris Interactive Inc. Survey of What American Teens & Adults Know About Economics. Prepared for The National
Council on Economic Education.
a. A similar survey conducted in 1999 included these additional questions.
b. From the Test of Economic Literacy, 2nd Ed., Examiner’s Manual, by John C. Soper and William Walstad, Joint Council on Economic Education, 1987.
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