ECONOMICS MODEL EXAMINATION FOR GRADE 12, 2010E.

DIRECTIONS: THIS PAPER CONTAINS ECONOMICS EXAMINATION FOR

GRADE 12.THE EXAMINATION CONTAINS 75 ITEMS.THERE IS ONLY ONE
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TIME ALLOWED 2:30 HOURS.

1. Which one of the following statement is correct?

A. the basic problem of economics is allocating scarce productive
resources to satisfy wants
B. Economics is the study of how people choose to use their unlimited
resources to produce goods
C. the basic problem of economics is how to make the best use of
unlimited resources to satisfy limited wants
D. economics as a subject matter arises in this world because of the
existence of unlimited resources and unlimited wants
2. Which of the following is the concern of macroeconomics?
A. What goods and services are being produced and in what quantities?
B. How is the supply of goods allocated among the members of the society?
C. Is the economy’s capacity to produce goods growing over time?
D. By what methods are goods and services being produced?
3. Which of the following is an example of positive economic statement?
A. It is better if schools introduce new extracurricular activities like
helping orphans
B. Unemployment is more harmful than inflation
C. The government should increase the minimum wage per hour to reduce
poverty
D. Growth and inequality are both increasing

4. Demand curve normally slopes downward to the right, because of

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A. Law of diminishing marginal utility, income effect of price change and

substitution effect
B. B. Change in number of consumers of a commodity and change inn
number of the use of commodity
C. C. Change in preference and change in technology
D. The test of the commodity being prestige goods
5. Production function is a ------------------- relationship between input and
output
A. price C. monetary
B. profit D. technological
6. Which one of the following is not causes for PPC (production possibility
curve) shift to outward?
A. an increase in technology
B. an increase in unemployment
C. an increase in labour force
D. an increase in worker productivity
7. Which one is not features of command economic system?
A. collective ownership
B. price mechanism
C. maximum social welfare
D. clear social and economic objective
8. If an increase in the price of good X ,results in an increase in a demand for
good Y. One may conclude that good X and Y are
A. Inferior goods C. Substitute goods
B. Unrelated goods D. Complementary goods

9. The simple circular flow model shows that

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A. Businesses are on the demand side of the product market and supply
side of resource market
B. Households are on the demand side of both products and resource
market
C. Businesses are on the supply side of both product and resource market
D. Households are on the supply side of resource market and on the
demand side of product market
10. Which one of the following is not true about a given production possibility
curve ( PPC )?
A. It is based on two products
B. It is based on changing technology
C. The quantity of resources of given quality is fixed
D. It is based on the assumption that the economy is operating at full
employment
11. If the price of good A increases, the demand for close substitute good B :
A. Is elastic C. will shift to the right
B. Is inelastic D. will not be affected
12. Inflation initiated by an increase in wages or other resource price is
A. demand –pull inflation C. cost-push inflation
B. cost-pull inflation D. demand-push inflation
13. When a price set below the equilibrium price, which of the following is true?
A. It causes a shortage
B. Quantity supplied exceeds quantity demanded
C. Quantity demanded is equal to quantity supplied
D. People pay more than the equilibrium price
14. Which one of the following is NOT included to compute GDP using
expenditure approach?
A. government expenditure C. gross capital formation
B. gross profit D. consumption
15. The Ethiopian population resource is characterized by
A. A.. High dependency rate
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B. Low proportion of young people

C. High life expectancy rate
D. High proportion of economically active people
16. Which of the following is an issue most appropriate for macroeconomic
analysis
A. The distribution of goods among households
B. Impacts of economic crisis on rural unemployment level
C. The price of wheat in Ethiopian cereal market
D. Leather demand in the foreign market
17. The basic decision must be made by all economies are
A. How the opportunity cost principle will be applied
B. What the price of each good will be, how will be provided, who will
consume
C. What will be produced, how good will be produced, for whom goods will
be produced
D. How much will be produced, when it will be produced, how much it will
cost
18. A household demand curve for coffee will NOT shift as a result of change
in
A. The price of coffee C. The price of tea
B. The household size D. Household income
19. Which one of the following is categorized under distributive service
A. banking and insurance
B. housing and domestic service
C. Trade, transportation and communication, hotel and restaurant
D. Public administration, defense, education and health

20. Which of the following is true in computation of GDP ?

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A. Net factor income is excluded as it represents outgoing income from the

country
B. Depreciation is excluded because it reduces the gross capital formation
C. Exports are not parts of GDP because they are not used inside the
country
D. Transfer payments are excluded because they are redistribution of
income
21. How much is the total variable cost of a firm, if the firms an average total
cost of Birr 4 and an average fixed cost Birr 1.5 at an output level of 1500
units?
A. Birr 5200 C. Birr 2500
B. Birr 2250 D. Birr 1500
22. An individual consumer consumes good X and Y. All other things remain
the same, an increase in consumer’s income increases the demand for good
Y and decreases demand for good X. Good X and Y are:
A. A.. Good X must be normal and good Y must be inferior
B. Good X must be inferior and good Y must be normal
C. There is no change in individual consumer’s demand curve for both
goods
D. Consumers demand curve for good Y shifts left
23. Among the arguments given for industrial sector development, the
balance of payment argument refers to
A. The creation of more job opportunity in the economy
B. The use of local raw materials and creation of inter linkage among
various sector
C. Generation of foreign currency by exporting more
D. High profit margin obtained by the industrial sector due to its linkage
to the agriculture sector

24. Which of the following statement is correct about perfectly competitive

market?
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A. The demand curve for its product becomes vertical

B. There is no information asymmetry between buyers and sellers
C. There is weak competition among sellers
D. The price elasticity of demand is infinite
25. In the long run
A. All costs are variable cost
B. All costs are fixed costs
C. Variable costs equal fixed costs
D. Fixed costs are greater than variable cost
26. Which one of the following is a direct tax?
A. sales tax C. corporate tax
B. turn over tax D. value added tax
27. Which of the following statement is true about utility maximization rule?
A. Marginal utility associated with the last unit of each good consumed is
equal for all goods consumed
B. Ratio of marginal utility associated with the last unit of each good
consumed to the price of good is equal for all goods consumed
C. The ratio of total utility associated with each good consumed to the
price of the good is equal for all goods consumed
D. The total utility associated with each good consumed is equal for all
goods consumed
28. Which one of the following is NOT TRUE about an indifference curve?
A. It is downward slopping
B. Do not intersect each other
C. It is concave to the origin
D. It exhibits diminishing marginal rate of substitution

29. If a consumer consumes two goods say A and B .Assuming that the goods
are normal goods and the consumers income increased by 10%, The
budget line will be
A. Shifts to the right
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B. move to a lower indifference curve

C. shift to the left
D. No effect on budget line
30. Which one of the following is true about the law of diminishing marginal
utility?
A. As quantity consumed increases marginal utility also increases
B. As quantity consumed increases total utility decreases
C. As quantity consumed increases marginal utility decreases
D. As quantity consumed increases both marginal and total utility
increases
31. If we have a diminishing return to scale and we increase the quantity of
labour and capital used unit of firm by 5%, output will increases by
A. 5% C. greater than 5%
B. less than 5% D. cannot be determined
32. Which one of the following is indicate firm’s implicit cost?
A. pays for wages C. uses its capital equipment
B. pays for its utilities D. pays interest on a loan to a bank
33. All are correct in perfectly competitive market structure, Except
A. marginal revenue is equals price
B. average revenue is greater than price
C. marginal revenue is equal to average revenue
D. average revenue is equal to price
34. In oligopoly
A. Firms are highly interdependent
B. There is no price competition
C. Products are always homogeneous
D. There is a low degree of interdependence among firms
35. An individual demand curve for perfectly competitive market is
A. Horizontal C. vertical
B. Downward slopping D. Upward slopping
36. Which one of the following is NOT cost of unemployment?
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A. Decrease real output C. The unemployment become

B. Exploitation of labour D. Economic stability
37. Which one of the following is true about cyclical unemployment?
A. Cyclical unemployment arises from the business cycle
B. It occur due to deficiency of demand or purchasing power
C. Affects all industries at the same time
D. All of the above
38. If the CPI (consumer price index) of year 2014 was 200 and year 2015 was
230.The annual rate of inflation?
A. 4.5% C. 15%
B. 23% D. 18%
39. Which one of the following is correct about real GDP?
A. Real GDP measures the value of total product in terms of current price
B. Real GDP is equal to the value of goods minus the current service price
C. Real GDP is equal to nominal GDP
D. Real GDP measures the value of total production in constant prices
40. The shut-down point of perfectly competitive firm in short run
correspondence to the point where
A. Market price is equal to average total cost
B. Market price is equal to average fixed cost of production
C. Market price is equal to minimum of average variable cost
D. Market price is equal to maximum of the average variable cost
41. Net export is positive, when
A. A nation’s import of goods and services exceeds its export
B. A nation’s export of goods and services exceeds its import
C. Depreciation is greater than gross private domestic investment
D. Government domestic investment is greater than depreciation
42. Which one of the following reason may have caused low consumption in an
economy?
A. Low level of indirect tax
B. Low level of inequalities
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C. High level of direct tax

D. Higher level of personal income
43. All are the main source of comparative advantages, except
A. Technology
B. Economic growth
C. Climatic and natural resources
D. Relative abundance of labour and capital
44. The current account balance includes
A. Import and export only
B. Foreign purchase of an asset
C. Transfer account only
D. Trade balance, service balance and unilateral transfer
45. During inflation an appropriate fiscal policy would be
A. decrease government purchase and increase taxes
B. Increase government purchase and decrease taxes
C. decrease both government purchase and taxes
D. Increase both government purchase and taxes
46. The industrial development strategies during the Derg regime was
characterized by
A. encourage the private ownership of medium and large scale enterprise
B. low borrowing interest rate to public enterprises and cooperatives
C. strong institutional and other supportive measures to boost the
development of small scale and handcraft
D. Import substitution and giving support to private sector

47. All are the characteristics of military government development strategies,

except
A. Discriminatory credit policy
B. High participation of private sector
C. Too much government intervention
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D. Capital ceiling on private sector investment

48. Which one of the following is NOT the performance indicator of industrial
sector?
A. Gross value of output
B. Value added at factor cost
C. Value added at market price
D. Net factor income from abroad
49. Budget deficit can be financed by
A. lending to civil servants
B. borrowing from civil servants
C. borrowing from domestic banks
D. lending to domestic banks
50. Which one of the following is the advantages of bi-modal approach in
agricultural strategies?
A. It supports small-scale diversification
B. It supports individual’s right to land
C. It discourages individual’s right to land
D. It discourage large scale diversification
51. Which one of the following is not the objectives of secondary education?
A. Achieving functional literacy
B. Preparing students to higher education
C. Enabling students to identify area of interest for further education
D. Enabling students to identify area of interest for vocational training

52. Which of the following is true about Ethiopian exports?

A. Ethiopia exports capital goods
B. Ethiopia is an exporter of manufactured goods
C. Ethiopia is a price taker in almost all exports
D. Ethiopian manufactures are greater in their contribution to export
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53. Which factor determine aggregate supply?

A. Real interest rate C. Availability of capital and labour
B. Availability of credit D. Level of income of the people
54. -------------- is a restriction which generate revenue for government and
protect local product from foreign competition.
A. Tariff C. exchange control
B. Quota D. Bill of exchange
55. Which one of the following is the economic role of private firm?
A. Maintain law and order
B. Providing public goods and services
C. Source of employments
D. Bring equitable distribution among citizens
56. The interaction of aggregate demand and aggregate supply determines
A. general price level, output and employment
B. money supply, interest rate and government expenditure
C. government expenditure, investment and net export
D. exchange rate, general price level and interest rate
57. Which one of the following refers monetary policy?
A. personal income
B. rate of interest
C. control of wages
D. government expenditure on goods and services
58. The consumption, when income is zero is---------
A. total C. autonomous
B. induced D. average
59. Among the following statements which one is true about agricultural
development led industrialization (ADLI) ?
A. encourage the manufacturing industry to be import dependent
B. industrial development does not bring economic growth
C. the industrial sector has the highest potential to adopt technology and
to create forward and back ward linkages with other sector
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D. the agricultural sector development assists industrial development by

creating backward and forward linkages with the industrial sector and
serving as a source of capital
60. Which one of the following industrial group contribute the largest share of
value added in Ethiopian manufacturing sector?
A. food and beverages C. textiles
B. chemicals D. leather and footwear
61. Which one of the following excluded among changes observed after the
overthrow of the Derg regime?
A. Dissolution of producer’s and service cooperatives
B. Encouraging small holders and private commercial farms
C. Abolition of compulsory of food grain quotas
D. Enhancement of public investments in state farms
62. According to national account of Ethiopia which one is different from the
rest?
A. Education C. communication
B. construction D. transportation
63. Which one of the following is NOT the feature of international trade?
A. It brings foreign goods and services that cannot be produced with in the
domestic economy.
B. It encourages specialization and creates interdependence among
countries
C. The gain from international trade equally distributed between the
trading nations
D. In international trade movement of goods and services is not free
64. --------------- is the most common mode of transportation in Ethiopia.
A. air transport C. shipping line
B. . railway D. road transport
65. Which of the following is not true about strategic direction of Ethiopian
national health policy?
A. assurance of equitable access
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B. decentralization of the health care system

C. international and inter sect oral cooperation
D. more focus on treatment component of health care
66. The share and performance of the agricultural sector and its contribution
to GDP decreases because of
A. lack of agricultural land
B. increasing in price of agricultural inputs
C. the increasing agricultural outputs
D. decrease in labour productivity
67. Which food crop is dominant in terms of areal coverage and output?
A. pulses and oils C. roots and tuber
B. cereals D. fruits and vegetables
68. All of the following factors limit the performance of the industrial sector in
Ethiopia, except
A. lack of finance
B. technological problem
C. the geography of the country
D. limited market for manufacturing goods
69. What was the most important achievement in the education sector during
the Derg?
A. The substantial reduction in the adult illiteracy rate
B. substantial improvement in the quality of secondary education
C. substantial expansion in vocational and technological training
D. substantial expansion in the number of universities in the country
70. Which one of the following is not true about globalization and trade
integration?
A. improved terms of trade
B. removal of trade barriers
C. reduced importance of comparative advantages
D. increased volume of exports and imports

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71. Suppose there are 100 identical buyers of commodity “X” in a market with
an individual demand function of Qd= 14-3pand 50 identical producers of
the same commodity each supply function of
Qs= -4+2p. What will be the market clearing price-quantity combination?
A. (2, 400) C. (4, 200)
B. B (2, 100 D. ( 200,4)
72. A perfectly competitive firm produces 5000 units of a good at a total cost of
30,000. The price of each good is Birr 5. Calculate the firm’s short run
profit or loss.
A. profit of 5000 C. profit of 25000
B. loss of 5000 D. profit of 2500
73. Suppose the competitive firm has an average fixed cost (AFC) of Birr 100
at 4 units of output and average variable cost of (AVC) Birr 75 at 8 units of
output. If a market price is Birr 275 per units, what will be the profit per
units of the firm at 8 units?
A. 150 C. 750
B. 300 D. 57

74. If the consumption function of an individual is C= 100+ 0.65yd. If the

individual disposable income for a specific period was 1000 Birr, the saving
of the individual during the same period is:
A. 750 C. 350
B. 250 D. 650
75. Depend on the above information, What is the total consumption when
the individual income increases by 500 birr and it spends 0.75 of it?
A. 1125 C. 1225
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B. 1500 D.1250

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