2016 SECOND SEMESTER GRADE 12 ECONOMICS SECOND MODEL

EXAMINATION
NUMBER OF ITEMS: 80
TIME ALLOWED: 2:30 HOURS

GENERAL DIRECTIONS
THIS BOOKLET CONTAINS ECONOMICS EXAMINATION. THE EXAM
CONSISTS OF 80 MULTIPLE-CHOICE QUESTIONS THAT YOU NEED TO
ATTEMPT. EACH QUESTION HAS ONLY ONE CORRECT ANSWER. CHOOSE
THE BEST ANSWER FROM THE PROVIDED OPTIONS AND MARK THE
CORRESPONDING LETTER ON THE ANSWER SHEET. CAREFULLY FOLLOW
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 Instruction I: Each of the following questions is followed by four possible
alternatives. Read each question carefully and blacken/write the letter of your
answer on the separate answer sheet.
The economy is defined as being in recession if;
Real GDP increases C. employment rate increases
Inflation increases D Economic activity declines
One of the following is not a component of GDP when we follow income approach.
Household consumption C. Compensation to employees
Corporate profit D. Capital consumption allowance(depreciation)
Which one of the following is not included in GDP computation?
Purchase of new durable goods C. purchase of used goods
Purchase of new residential D. values of change in inventory
Which of the following is a correct combination?
GDP = GNP+ NFI B. GNP = GDP + NFI
GNP + GDP = NFI D. NFI+NFE= GDP
When NFI >0 , then, GNP is ;
greater than GDP C. less than GDP
equal to GDP D. cannot be determined
If the national economy is close then;
GNP > GDP C.GNP=GDP
GNP < GDP D. NFI is greater than zero
. Nominal GDP can increase at a faster rate than real GDP only if;
there is price rise(inflation) C. unemployment rate is increasing
the value of dollar is stable D. the population is growing
In the expenditure approach GDP is computed as;
C+Ig+G C. C+Ig+G+(NFI)
C + Ig + G +(X-M) D. C+Ig+G+(X+M)
Which of the following is not a concern of Macroeconomics?
Dealing with basic elements of demand, supply and elasticity
Dealing with government policy instruments
Dealing with the national income and product accounts
Dealing with the international trade and Balance of payment

What problems are we most likely to see and at which stage of the business cycle?
High unemployment during booms.
Low inflation during booms
High unemployment during recessions.
Both high unemployment and high inflation during booms
 Which of the following is not a problem associated with unemployment?
Increase in suicides and mental illness C. Full utilization of national resources
Loss of income D. Social unrest
. Assume that the cyclical unemployment rate in a country is 6%, structural unemployment the
country is 2% and the structural unemployment rate is 10%. What is the number of unemployed
persons given the labor force in the country amounts to 100 million?
A. 18 million B. 12 million C. 4 million D. 6 million
. When a country is operating at the natural rate of unemployment,
The inflation rate is zero C. there is no cyclical unemployment
there is no structural unemployment D. there is no frictional unemployment
A situation where all those workers who are able and willing to work get employment is:
Underemployment C. Disguised employment
Full employment D. Seasonal unemployment
(For question No.15 to 18.)
Suppose a hypothetical population data of country is given as follows:
Number of employed peoples= 200 million
Number of peoples actively seeking job but unable to get job = 50 million
Number of peoples over the age 64= 5 million
Number of peoples under the age 15= 100 million
Number of skilled peoples but not seeking job plus discouraged workers= 5 million
The total labor force is:
A. 250 million B. 350 million C. 360 million D. 450 million
Unemployment rate is: A. 25% B. 80% C. 40% D. 20%
Employment rate is: A. 80% B. 20% C. 90% D. 67%
Total population is;
360 million B. 450 million C. 250 million D. 355 million
If the rate of inflation increases then,
Real income increases C. The purchasing power of money declines
Unemployment rate necessarily increases. D. Nominal income declines
When the annual inflation rate is increasing by the dual/ triple-digit, this inflation rate is
called
Running inflation C. Walking inflation
Galloping inflation D. Creeping.
If the CPI is 240 one year and 320 the next, the annual rate of inflation is ;
A. -8.3% B. 33.3% C.6.2% D. 8.3%

Which one of the following causes of inflation is not related to growth of money supply?
Supply shock that reduces output B. fast expansion of credit
C. Increased use of deficit financing D. Increased government financing
Given :The consumer buys 200 Kg of Teff and 20 liters of Milk and 60 loaves of bread
 per year and assume that the price of these basket of goods in the different years, which is
birr 120, birr 50 and birr 5 in 2014 E.C respectively and in 2015 E.C the price becomes
birr 150, birr70 and birr 10 respectively.
The Inflation rate between 2014 E.C and 2015 E.C from the above given information is: A,
65%B. 30% C. 26.5% D, 50%
Which of the following is not the views of classical economists?
Market operates best when left by themselves
Government role is needed for the economy to achieve full employment
Markets always operates close to full capacity
Stabilization policy is not needed by government
While both monetarists and Keynesians view the aggregate demand curve as downward-
sloping, monetarists argue that:
changes in government spending and taxes are the only factors causing the aggregate
demand curve to shift.
a change in the quantity of money is the primary factor causing the aggregate demand
curve to shift
.C. changes in government spending and taxes, in addition to changes in the money supply,
cause the aggregate demand curve to shift
.D. a change in the quantity of money will have no effect on the aggregate demand curve.
What do classical economists believe?
The economy is self-correcting. C. The economy needs fiscal policy
The economy gets stuck. D. Wages are sticky.
Aggregate demand will shift to the right, if:
the aggregate price level increases C. government purchases increases
there is an increase in taxes D. there is a decrease in the money supply
A components of AD which is primarily determined by disposable income is ;
A . Government purchase C. consumption expenditure
B. Private spending for investment D. Compensation to employers
A change in the quantity demanded of real GDP is brought by ;
a change in the general level of income of the people
A change in the general price level
level of economic activities in other countries
level of economic activities in the economy it self
Which of the following does not cause the aggregate demand curve to shift to the left?
A decrease in net exports. C. A decrease in government spending.
A decrease in taxes. D. A decrease in the money supply.
An upward movement of a given aggregate demand curve is the result of
a rising price level C. a rising money supply
increased taxes D. a rising income
 An increase in expected future income would:
increase today’s desired consumption C. decrease future consumption
decrease today’s desired consumption D. led to no change in consumption
The Classical aggregate supply curve is vertical indicating that;
Firms will supply different amount of goods with existing price level assuming that labor
market is in dis-equilibrium
The same amount of goods will be supplied whatever the price level is, assuming labor
market is always in equilibrium with full employment
The same amount of the price will be charged whatever the quantity supplied is assuming
labor market is in equilibrium
Different amount of goods will be supplied with the same price assuming that labor
market is in dis-equilibrium
The Keynesian aggregate supply curve is horizontal because
.A. it represents the full employment level of real GDP.
B. it represents the full employment level of nominal GDP
C. it represents unemployment and unused capacity in the economy and firms can obtain
much labor at the current wage.
D. it represents the position where the economy is operating beyond full employment.
A decrease in the money wage rate shifts the SAS curve and an increase in the
money prices of raw materials shifts the SAS curve .
leftward; leftward C. leftward; rightward
rightward; rightward D. rightward; leftward
What does a market failure imply
Wastefulness or economic inefficiency
It lowers the costs involved in making a transaction
Goods are always supplied by producer
The consumers get the lowest prices and highest quantities
. Free riding can occur if a good is
excludable and non-rival
excludable and rival.
non-excludable and rival.
non-excludable and non-rival

Which of the following statement is wrong about the tragedy of the commons?
Existences of important shared but limited resources
Existences of more desire by participants than currently allocated to them
Existences of equal access with no governing rule that set limits on participants
Freedom in commons may not bring a complete loss of to all
Externalities
are not reflected in market prices, so they can be a source of economic inefficiency
 .B. do become reflected in market prices, so they can be a source of economic inefficiency.
are not reflected in market prices, so they do not adversely affect economic efficiency.
do become reflected in market prices, so they do not adversely affect economic efficiency.
In the presence of positive externality;
Social benefit is greater than private benefit
Total benefit to the society is less than individual private benefit
Marginal private benefit is greater than marginal social benefit
Marginal social benefit is less than marginal private benefit
With the existences of negative externality;
The market leads to over production of output
The price responsible for the problem is high
The private marginal benefit is less than the social marginal benefit
The market leads to under production of output
Constructing plastic containers produces air pollutants. Therefore, in the market for plastic
containers:
the marginal social cost curve is above and to the right of the demand curve.
the marginal social cost curve is below and to the left of the demand curve
the marginal social cost curve is above and to the left of the supply curve.
the marginal social cost curve is below and to the right of the supply curve.
For question Number (43-44)
Suppose that a producer of a commodity X which happen to be polluting the locality in
its operation is characterized by the following demand, supply and externality
functions: Demand, P= 3000-5Q ,
Private Marginal cost ; P=300+5Q ,
Marginal external cost = 500 birr
The private profit maximizing level of output and Price (Q,P) is;
(220units, birr1900) C. (270units, birr1650)
(200units, birr 1000) D. (70units, birr 1300)
The socially optimal level of output and price(Q, P) is:
(270units,1650 birr) C. (220units, 1900birr)
B.(100 units, 1400birr) D. (200units, 2000 birr)
The situations occurs when one side of the market cannot observe the action of the others is;
A. Moral hazard B. Adverse selection C. Warranty D. Guaranty
A warranty is most valuable as a signaling device when
the buyer has much more information about the product than the seller does.
the seller has much more information about the product than the buyer does
the buyer has much more information about his or her own preferences than the seller
does.
neither the buyer nor the seller has good information about the product.
 Adverse selection can occur when:
all persons involved in a transaction have full information
one person has information not available to others
post-agreement incentives result in workers shirking
nobody has any information about a particular product
One of the following is the government economic policy which deals with taxation,
expenditure, borrowing and management of public debt in the economy.
Interest rate policy C. Exchange rate policy
Fiscal policy D. Monetary policy
The management of money supply and its link to prices, interest rates and other economic
variables by a government regulatory body is known as
A. Monetary policy B. Fiscal policy C. Income policy D. exchange rate policy
Which of the following is the major instruments of contractionary monetary policy?
Buying security C. Decreasing bank rate
Decreasing cash-reserve ratio D. Increase cash reserve ratio
Which one cannot be a possible policy instruments used to control the situation of deficient
demand?
reducing government expenditure C. increasing government expenditure
reduction of income tax D. reduction of discount rate
If the economy's AD is pushed above its potential GDP ;
contractionary monetary policy can reduce the inflationary pressure
expansionary monetary policy can reduce the inflationary pressure
expansionary fiscal policy can reduce the inflationary pressure
reduction of income tax can correct the inflationary pressure
To control the situation of excess demand the central bank:
reduces discount rate C. sells government securities
decreases RRR D. apply expansionary monetary policy
Price floor results in .
A. no change B. Equilibrium C. Shortage D. Surplus
When there is a shortage in a market:
there is downward pressure on price
there is upward pressure on price.
the market could still be in equilibrium.
the price must be above equilibrium
Which of the following cannot be occurred in a free market of labor?
an increase in the supply of labor leads to a decrease in equilibrium price of labor (wage)
an increase in the demand of labor leads to a rise in equilibrium price of labor (wage)
a decrease in the supply of labor leads to a decrease in equilibrium price of labor (wage)
a decrease in the demand of labor leads to a decrease in equilibrium price of labor (wage)
 Which of the following is not the characteristic of perfectly competitive labor market
large number of firms competing
Numerous qualified people with identical skill
wage taking behavior
A firm can exert control over the market wage
Which of the following statement is true about the effect of exchange rate on economic
transaction?
Depreciation of nations currency makes foreign goods more expensive
Depreciation of nations currency makes foreign goods cheaper
Appreciation of nations currency makes foreign goods more expensive
Appreciation of foreign currency makes domestic goods more expensive
If the dollar price of the Ethiopian Birr increases, then the:
Ethiopian Birr has appreciated while the USD has depreciated
.B. Ethiopian Birr has depreciated while the USD has appreciated.
Ethiopian Birr and the USD have depreciated.
Both Ethiopian Birr and USD have appreciated
From the following, which is not a component of Balance of payment?
Trade balance C. Current account balance
B Capital account balance D. Production balance
Devaluation:
Encourages imports and discourages exports.
Encourages exports and discourages imports
.C. Encourages both exports and imports
.D. Discourages both exports and imports
The terms of trade measure
the income of a country compared to another
The GDP of a country compared to another
The quantity of exports of a country compared to another
Export prices compared to import prices.
Incidence of a direct tax:
Can be shifted C. Cannot be shifted
must be shifted D. rests on the same person
The immediate burden of a tax payment is called:
A. Impact B. Incidence C. Tax base D. Effect
Under proclamation No 286/2002 and regulation No.78/2002 of Ethiopia income received
from employment is fall under a type of:
A. Schedule B B. Schedule A C. Schedule C D. Schedule D
Which one the following is NOT correct about custom duty?
It is imposed on imported goods.
It serves as trade barrier
 It helps to protect infant domestic industries from stiff competitions
It is imposed on incomes of people.
A tax imposed and payable on selected goods such as, luxury items and basic goods which are
demand inelastic is:
Excise tax C. personal income tax
Direct tax D. business income tax
The tax which is charged on property, income and profits in the form of income tax,
property tax etc. is known as:
Indirect tax C. direct tax
excise duty D. sales tax
It is an equalization tax that is imposed on persons not registered for value-added tax to fulfil
their obligations
A. Turnover tax B. Excise tax C. Surtax D. VAT
Which organization defined poverty as “the pronounced deprivation in well-being”?
World Bank C. UNESCO
IMF D. ILO
Measuring poverty as the sum of the difference between the poverty line and actual income
levels of all people who are living below that line is:
Poverty headcount index C. Total poverty gap
Multidimensional poverty index D. Average poverty index
Which one of the following is not obstacle for the economic development of LDCs?
Vicious circle of poverty C. Racism & conflict (war)
Corruption & lack of good governance D. Economic, political & social stabilities
The current Ethiopian economic policy constitutes:
Centralization of economic decision making
Strengthening government regulation C
Economic liberalization.
D. Nationalization of private firms
The major challenges of the current national development plan of the Ethiopian is
success to ensure quality economic growth
External debt
balance between domestic saving and investment
to ensure quality economic growth
Which one of the following was the major policy and strategy of the socialist government?
Agricultural led strategy B. Industrial led strategy
C. Privatization of the state-owned enterprises D. Market oriented economy
One of the following is not the advantages of decentralized system?
loss of economic scale in provision of public goods
Fostering intergovernmental competition
 Tailoring output to local tastes
Experimentation and innovation in locally provided goods and services
To make Ethiopia an African beacon of prosperity, one of the following is not among the
major development objectives?
Maintaining macroeconomic stability
Building strong and inclusive institution
Ensuring structural economic transformation
Nationalization of the private owned enterprises
Too many greenhouse gasses in the atmosphere may block heat from
escaping into space and trap too much heat next to the Earth’s surface
causing: ________________.
another ice age C. global warming
Earthquakes D. volcanic eruptions
Identify the correct statement
there is no difference between climate and weather
For developing countries climate change simplify the existing challenges of poverty
eradication
Today climate change is one of the least urgent challenges for societies and economies
Green economy and green growth are expected to reduce carbon emission and pollution
Which of the following statement best describes sustainable development?
sustainable development ignores the needs of present society
Sustainable development ignores the needs of the future generation
Sustainable development gives attention to the needs both present and future generation
Sustainable development gives attention to the needs of future generation only