DEBRE MARKOS UNIVERSITY BURIE CAMPUS

DEPARTMENT OF ECONOMICS
MODEL EXAM FOR 4th YEAR REGULAR ECONOMICS STUDENTS
Max value: 100
Time allowed: 2:00 hr.
Name____________________________________________IDNo______________________
I. choose the best answer from the given alternatives
1. According to the Ricardo's principle, specialization and trade increase a nation's total output
since:
A. Resources are directed to their highest productivity
B. The output of the nation's trading partner declines
C. The nation can produce outside of its production possibilities curve.
D. The problem of unemployment is eliminated
2. Which of the following project cycle is identifying an idea, which enables to launch a
project?
A. Appraisal C. Preparation
B. Evaluation D. Identification
3. The school of thought that may be defined as a reaction against Mercantilism and believed
that only agriculture was the most productive sector that produces surplus rather than trade
and manufacturing is/are:
A. Keynesian school of thought C. Physiocracy school of thought
B. Socialist school of thought D. Classical school of thought
4. The demand curve that faces monopolistically competitive firm is
A. Perfectly elastic demand curve
B. Relatively more elastic than that of a monopoly
C. Horizontal demand curve showing that MR = P.
D. Relatively more elastic than that of the perfect competitive market
5. If the firm hires to a point where the marginal expense of the labor is greater than the
marginal revenue product of the labor, then
A. Profit could be increased by increasing employment
B. Profit could be increase by reducing employment
C. Profit are maximized
D. Profit is unchanged
4. To determine the correct level of GNP ( gross national product), it is necessary to:
A. Add up all savings
B. Add up the values of goods and services during one year
C. Count all imports
D. Add up the value of semi-finished goods
5. The IS curve shifts left if there is:
A. An increase in Co (consumption expenditure)
B. An increase in Io (investment)
C. An increase in G (government spending)
D. An increase in T (tax)
6. An outcome where both players correctly believe that they are doing the best they can, given
the action of the other player is called:
A. Nash equilibrium C. Sequential game
B. Dominant strategy D. Mixed strategy
7. Assume that MOHA soft drinks industry sells its product for Birr 2 per unit which is
produced by employing labor at a wage rate of 14 Birr per day. The relationship between
output and input is given as Q = L2 + L +1. What is the equilibrium level of employment for
labor?
A. 5 B. 4 C. 3 D. 6
8. Which of the following is correct about the financial analysis of a project?
A. The financial analysis focus on the social costs and benefits
B. The financial analysis views from the society’s point of view
C. The financial analysis views from the participants (or owners) point of view
D. The financial analysis use shadow prices or ‘economic accounting prices’.
9. among the following one is tangible initial fixed investments cost
A. Warehouses and show rooms cost C. Cost of local or indigenous machinery
B. The cost of land and site development D. cost of laboratory equipment’s
10. The project is said to be worth undertaking if the benefit-cost ratio is ______
A. Less than 1 C. More than 1
B. Less than 2 D. More than 2
11. Ex-ante/start-up Evaluation is
 A. It takes place while the implementation of the planned project is on-progress
B. Assess the feasibility and potential effects and impacts of proposed project
C. Conducted when the funding for the project comes to an end
D. Known as a project completion report
12. Which one of the following is not reason to conduct monitoring and evaluation in a given
project?
A. project managers and other stakeholders needn’t to know to what extent their project is
meeting its objectives
B. monetary and evaluation build greater transparency and accountability in terms of use of
project resources
C. Information generated through M&E provides project staff with a clearer basis for
decision making
D. Lessons learned from project experience can be used to improve future project planning
and development.
13. _____is one of methodologies in impact evaluation that constructs a statistical comparison
between groups based observed characteristics.
A. Randomized evaluations C. Double-difference (DD) methods
B. Propensity score matching (PSM) D. Instrumental variable (IV) methods
14. Which of the following market types has a large number of firms that sell similar but slightly
different products?
A. Perfect competition C. Oligopoly
B. Monopolistic competition D. Monopoly
15. If an individual with risky investment who is that most actively seek and receive loan from
financial institution. What problem does this cause the financial institution to face?
A. Moral hazard C. Adverse selection
B. Symmetric information D. Free rider
16. In which one of the following duopoly model the strategic interaction between firms made on
quantity of output produced simultaneously.
A. Cournot duopoly model C. Stackleberg duopoly model
B. Bertrand duopoly model D. Dominant firm price leadership
17. Which of the following is not true about factor pricing under perfect competition?
A. Marginal revenue product of labor equal to value of marginal product of labor
B. The equilibrium of the firm employing labor is given by MRPL = W (wage)
C. The long run demand curve for factor is more elastic
D. Individual demand curve for labor is perfectly elastic
18. “Welfare is improved when the greatest good is secured for the greatest numbers” This
notion of welfare measure is given by
A. Benthams criterion C. Cardinalist criterion
B. Pareto optimality criterion D. Kaldor-Hicks compensation criterion
19. Under Heckscher-Ohlin Model, international trade can lead to increases in:
A. Consumer welfare only if output of both products is increased
B. Output of both products and consumer welfare in both countries
C. Total production of both products, but not consumer welfare in both countries
D. Consumer welfare in both countries, but not total production of both products.
20. Which of the following is the conclusion of New Trade Theory?
A. Countries as a whole must gain from trade.
B. A country can only hurt itself by using government policies to promote exports.
C. Consumers gain from the increased variety of goods that trade makes available
D. A country may export a good or import it, but not both.
21. Which of the following is the incorrect combinations international trade theory
A. Adam smith Absolute advantage
B. Hecksher-Ohlin Factor proportion theory
C. Steffan Linder product life cycle theory
D. David Ricardo Comparative Advantage
22. If the marginal propensity to consume is 0.3, then the tax multipliers will be____?

A. 0.7 B. -0.7 C. 0.428 D. -0.428

23. Which one of the following is false about the Limitations of the Mundell-Fleming Model.
A. One of the obvious limitations of the model is that it concentrates on the supply side of
the economy and neglects the demand side.
 B. One of the obvious limitations of the model is that it concentrates on the demand side
of the economy and neglects the supply side.
C. A major problem with the model is the treatment of exchange rate expectations.
D. The model fails to take account of long run constraints that govern both the private and
public sector.
24. Which one is not common market imperfections found in developing countries?
A. Rationing of a commodity C. prescription of minimum wage rates
B. Foreign exchange regulation. D. Transfer payments
25. From the following alternatives one is incorrect statement, but which one is?
A. The slope of the BP (balance of payment) schedule is determined by the degree of
capital mobility internationally.
B. The higher the degree of capital mobility then the steeper the BP schedule would be.
C. When capital is perfectly mobile, the slightest rise in the domestic interest above the
world interest rate leads to a massive capital inflow making the BP schedule horizontal
at the world interest rate.
D. An increase in income which leads to a deterioration of the current account.
26. Along a short-run aggregate supply curve, a decrease in the price level causes
A. Less output to be produced as firms decrease production.
B. More output to be produced as consumer demand increases.
C. More output to be produced as firms increase production.
D. No change in output because firms do not change the quantity they produce.
27. Trade restrictions in the real world results
A. Are extremely rare, due to the economic benefits of specialization and trade.
B. Hurt domestic producers and benefit foreign consumers.
C. Hurt domestic producers and benefit domestic consumers.
D. Hurt domestic consumers and benefit domestic producers.
28. The theory suggesting that the patterns of international trade are determined by factor
endowment rather than productivity was propounded by which one of the following?
A. Adam smith
B. David Ricardo
C. Heckscher –Ohlin
 D. Michael porter
29. According to the ______ argument for protection, tariffs can shield new industries from
import competition until they have grown strong and efficient enough to withstand the
competition by foreign producers.
A. scientific tariff argument
B. infant industry argument
C. beggar they neighbor argument
D. foreign dumping argument
30. All of the following are fundamental to the World Trade Organization except
A. bilateral tariff reductions to promote trade liberalization
B. the use of the most-favored-nation clause (normal trade relations)
C. nondiscrimination in trading relationships
D. the prohibition of import quotas and export quotas
31. _______is quotas that result in a total prohibition of trade
A. Embargoes
B. tariff-rate quotas
C. voluntary export restraints
D. nontariff barriers
32. All of the following are the major beneficial effects that international trade can have on
economic development, particularly in the context of developing countries except
A. trade would represent a vent for surplus, or an outlet for the potential surplus of
agricultural commodities and raw materials
B. Trade May act as a vehicle for the transmission of new ideas, new technology, and new
managerial and other skills.
C. Trade can stimulate and facilitate the international flow of capital from developed to
developing countries.
D. None of the above
33. All of the following are the main Challenges for Africa’s Integration except
A. Multiple and overlapping memberships
B. Insufficient technical and analytical support for some integration instruments
C. Convergent and stable national macroeconomic policies.
 D. Inability to make integration objectives, plans, and programs part of national
development frameworks.
34. ___________is a non-tariff barrier that refers a regulation that requires that some specified
fraction of a final good be produced domestically.
A. government procurement provisions
B. Health and Safety Standards
C. Red - Tape Barriers
D. local content requirement
35. If the Japanese yen was worth $0.0035 six months ago and is worth $0.0045 today, how
much has the yen appreciated or depreciated?
A. Appreciated; about 29%
B. Appreciated; about 25%
C. Depreciated; about 20%
D. Depreciated; about 18%
36. Speculation in foreign exchange markets entails
A. covering in the forward market
B. covering in the money market
C. hedging in the option market
D. buying in the current spot market and selling in the future spot market
37. _____is a types of foreign exchange transaction that provides immediate payment to the
buyers and the sellers as per the current exchange rate.
A. Forward exchange
B. Spot exchange
C. Swap exchange
D. Hedging
38. The nominal exchange rate is forward-looking. What does that mean for its current value?
A. It depends equally on past and expected events.
B. It is exclusively determined by current expectations about the future.
C. It will slowly adjust to any expected future level.
D. Only variables from future periods determine the current value
39. A company located in Ethiopia receives a loan from a company located abroad. How is this
transaction recorded in Ethiopia Balance of Payments account?
A. Credit side of current account
B. Debit side of current account
C. Credit side of Capital account
D. Debit side of capital account
40. Which of the following approaches of BOP explains the relationship between domestic
output and trade balance
A. the absorption approach
B. elasticity approach
C. Keynesian approach
D. monetary approach
41. Which of the following is the main role of the IMF?
A. To ensure a stable exchange rate regime and provide emergency assistance to countries
facing crises in balance of payments.
B. To be a forum for trade and liberalization.
C. To assist countries in development.
D. To facilitate private investment around the world.
42. Countries that had both gold and silver as their medium of exchange as system called
Bimetallism not seldom faced troubles which were supposed to be tackled by Gresham's
Law. What does Gresham's Law state?
A. Silver and gold have a fixed parity
B. It abandoned bimetallism
C. Metals that becomes more valuable than the official rate stop circulating.
D. No more than two metals are allowed to be used as currencies.
43. Which one of the following is mismatched on the most prominent work on consumption?
A. Franco Modigliani – the life cycle hypothesis
B. Irving fisher – Inter temporal choice
C. Robert Hall – the Random Walk hypothesis
D. Milton Friedman – Consumption and current income
44. ________refer to the purchase and sales of government bonds by central banks.
A. Open Market Operations B. Reserve Requirements C. Discount Rate D. interest rate
45. If policymakers announce in advance how policy will respond to various situations and
commit themselves to following through on this announcement, this is:
A. Policy by rule. C. policy by discretion
B. monetary policy D. time inconsistent policy
46. The total number of dollars held by the public as currency and by the banks as reserves
represents:
A. Money supply C. Money demand
B. Monetary base D. Money multiplier
47. Which one of the following is NOT considered as a reason for the existence of banks and
non-bank financial institutions?
A. Pooling of surplus fund from small savers.
B. Collecting and processing information to increase information cost.
C. Supplying liquidity and reduce transaction cost.
D. Channelling funds from those who have no investment opportunities to those who have.
48. According to Keynes liquidity preference theory of money demand the speculative motive
for holding money is closely tied to what function of money?
A. Store of value/wealth C. Medium of exchange
B. Unit of account D. Standard of deferred payment
3 1

49. Given the Cobb - Douglas production function f (L, K) = 60 L 4

K 4
, then the degree of
homogeneity is:
A. Indeterminate C. One
B. Zero D. Two
2
50. The maximum value of the function y = -3x + x + 7, subject to x ¿ 0 is:
27
A. 0 C.
4
1
B. D. 7
6
51. Which one of the following is not correct at optimum solution given the following
optimization problem? Maximize U =X 1 X 2 +2 X 1 Subject ¿ 4 x 1 +2 x 2 = 60.
 A. The optimal value of Lagrange multiplier is Four.
B. The optimal value of U at optimal solution is 128.
C. The bordered hessian is positive definite.
D. The optimal value of x 2 is 14.
52. Which one of the following is true about The Malthusian model of population growth?
A. Diminishing returns to land
B. Food supply tends to outstrip population
C. Economics of scale
D. Constant return to scale
53. A better educated population will tend to be healthier, and vice versa, that a healthier
population will tend to be better educated because of?
A. Health and education is complementary
B. Health and education is supplementary
C. Greeter health capital may not improve the return on investment in education
D. Greater education capital may not improve the return on investment in health
54. Which of the following accurately describes the belief of the Dependencies school regarding
the effect of trade on developing countries?
A. An outward-looking export promotion strategy of industrialization is the best and only
means to promote development.
B. Export-led growth holds the key to industrialization and development.
C. Developing countries should protect domestic industry from competition and pursue a
policy of import-substitution.
D. Developing countries could not import capital to produce manufactured good.

55. Economists bother about the stability of velocity of money since if velocity is not stable,
money demand is not stable, then steady growth of money supply leads to:
A. Ineffectiveness of conduct of monetary policy.
B. Promoting price stability at low unemployment.
C. Promote low unemployment with high inflation.
D. Effectiveness of monetary policy to achieve price stability.
56. If the National Bank of Ethiopia undergo a sale of ETB 100 securities to Ato Bereket who
pays with currency, then which one of the following is NOT correct?
 A. Reserves of National Bank of Ethiopia increase by ETB 100.
B. Assets of National Bank of Ethiopia reduces by ETB 100.
C. Liabilities of National Bank of Ethiopia reduces by ETB 100.
D. Monetary base will reduce by amount of ETB 100.
57. Which one of the following is correct about model of money supply?
A. The lower the reserve deposit ratio, the more money banks create.
B. The lower the currency deposit ratio, the lower money banks create.
C. The decrease in currency deposit ratio decreases money multiplier.
D. The decrease in currency deposit ratio decreases money supply.
58. Of the following which one indicates linear differential equation of second order first degree?
dy
dt ¿ 2 X +6
A.
d2 y

B.
2
dt +¿
ⅆy 3 2
ⅆt ( )
+ x =0

dy 4
) 5
dt −5 t =0
C. (
d3 y
dt 3 +¿
D.
59. Which one of the following is NOT correct give the difference equation y t +1 +3 y t +8=0
y 0 =16
when ?
A. The particular integral solution is -2.
B. The complementary solution is A( 3)t .
C. The general solution is A(−3)t −2.
D. The complementary solution is A(−3)t .
60. The optimal control path that will
1
Maximize ∫ ( y −u ) dt
2

'
Subject ¿ y =u
y (0 )=5 y ( 1 ) free is:
 1 1
A. u∗( t )= (1−t) C. u∗( t )= (12−t)
2 2
1 1
B. u∗( t )= ¿ D. u∗( t )= ( 5−t )
7 2
61. The Lewis model works as long as which of the following holds true?
A. The wage rate in the modern sector is lower than in the traditional agricultural sector.
B. The modern sector grows slow enough to absorb labor from the traditional agricultural
sector.
C. The traditional agricultural sector remains unproductive and thus able to release workers
without reducing agriculture output.
D. The workers released from the modern sector can be quickly retrained to fit into the
Agriculture sector.
62. Which one of the following is the economic motives from the point of view of recipients:
A. Foreign exchange constraints
B. Rate of interest
C. Tied loans
D. Market
63. The vast increase in the amount of foreign direct investments going to developing countries
in recent years fuelled by except
A. The rise of Multi-National Corporations and the search for global profits
B. The liberalization of capital markets
C. Economic liberalization within LDCs
D. Colonization
64. Which one of the following is correct to the structure of world Agriculture?
A. The higher efficient and productivity of agriculture to developed countries
B. The inefficient and low productivity of agriculture to developed countries
C. The maximum level of subsistence agriculture to developing countries
D. The higher efficient and productivity of agriculture to developing countries

65. Given the demand and supply for the cobweb model as
 d s
Qt =400−20 pt And Qt =−50+10 pt−1 , then the complete equation or general
solution is:
A. P ( t ) =A (−0.5 )t +7 C. P ( t ) =A (−2)t +7
B. P ( t ) =A (−0.5 )t +15 D. P ( t ) =A (−2)t +15
66. Of the following one is not the function of central bank, which one is it?
A. Lender of last resort for all commercial banks in emergency.
B. Custodian of foreign exchange of a country.
C. Control of credit and there by controlling money supply.
D. Issuing currency and refusing to withdraw damaged currency from circulation.
67. Which one of the following method does the central bank makes the member banks agree
through persuasion (or pressure) to follow its directives?
A. Moral suasion C. Margin Requirement
B. Rationing of credit D. Selective credit control
68. _________ Unemployment arises from mismatch between the types of jobs that are available
and type of job seekers.
A. Structural B. Frictional C. Cyclical D. Voluntary
69. Which of the following is not correct that shift the investment function?
A. Technological improvements raise MPK and raise business fixed investment.
B. Increase in population raises demand for, price of housing and raises residential
investment.
C. Increase in immigration raises demand for, price of housing and raises residential
investment.
D. An increase in the tax credit would discourage business investment.
70. The real cost of capital depends positively on except:
A. the relative price of capital C. the real interest rate
B. the depreciation rate D. the price of capital
71. ___________is the fraction of deposits that banks hold in reserve.
A. monetary base B. reserve ratio C. currency-deposit ratio D. reserve-deposit
ratio
72. Which of the following statements about the Economics model and the Econometrics model
is true?
A. Economic model identifies existence and probability of error terms
 B. An econometrics model is a set of assumptions that describes the behavior of
an economy
C. Economic model concerned with the measurement of the parameters of
economic relationships and with the predication of the values of economic
variables.
D. Econometrics model important to formulate hypothesis testing
73. Researcher is using data for a sample of 20 observations to estimate the relation
between consumption expenditure and income. Preliminary analysis of the sample
data produces the following data.
xiyi  865, xi2  1322, Xi 320 Yi  210

By using the above information to compute OLS estimates of the intercept and slope
coefficients respectively?
A. 10.5 & 0.654 B. 0.036 & 0.654 C. 16 & 10.5 D. 0.654 & 16
74. Consider the model:

Based on the information given above which one of the following is the value of the OLS
estimate of the slope coefficient, which means β1 and β2 respectively?

A. 0.278 & 0.685 B. 18.26 & 0.278 C. 0.37 & 0.685 D. 0.37 & 18.26
75. Which one of the following is correctly matched with the consequences of violation
of CLRM?
A. In the situation of multicollinearity variance and standard error are very small
B. Under Heteroscedasticity the variance of estimators are biased and
inconsistent
C. R-squared is under estimated when there is the problem of autocorrelation
happen in our model
 D. The forecasts based on the incorrect model and the confidence intervals will
be reliable
76. All of the following are the advantages of panel data over cross-section or time series
data except.
A. Panel data can minimize the bias that might result if we aggregate individuals or
firms into broad aggregates
B. Panel data give more collinearity among variables and less efficiency
C. Panel data are better suited to study the dynamics of change
D. Panel data enables us to study more complicated behavioral models
77. In a multi-equation model the jointly determined variables are referred to
as____________.
A. Exogenous B. Explanatory C. Regressors D. Endogenous
78. If in our regression model, one of the explanatory variables included is the lagged
value of the dependent variable, then the model is referred to as:
A. Best fit model C. Dynamic model
B. Autoregressive model D. First-difference form
79. When there are both qualitative and quantitative variables are there in the model:
A. ANOVA B. ANCOVA C. CHI SQUARE D. All of the above
80. Which one of the following causes a change in the slope of budget line, when the consumer
consuming two commodity X&Y.
A. The change in the price of good X only C. Change in income of the consumer
B. Proportional change in the price of X&Y D. All
81. Which one of the following is correct statement?
A. along an indifference curve utility is constant
B. under ordinal approach utility maximization slope of indifference curve and slope of
budget line are equal
C. time can’t affect the utility of a particular product
D. indifference curve must be thin
Expected value is defined as
a. the profit on a fair bet.
b. the most likely outcome of a given experiment.
 c. the outcome that will occur on average for a given
experiment.
d. the relative frequency with which an event will occur
82. Expected value is defined as:
A. The profit on a fair bet.
B. The most likely outcome of a given experiment.
C. The outcome that will occur on average for a given experiment.
D. the relative frequency with which an event will occur
83. In the short run production function efficient region of production is exist when,
A. MP of variable input increase C. MP of variable input is negative
B. MP of variable input decline but positive D. None
84. If the average total cost of producing the good is increasing, which one of the following
must be true?
A. AFC is raising B. AVC is falling C. MC>ATC D. MC is decreasing
85. Which of the following is not true about perfectly competitive firm equilibrium condition
A. MR=MC=P
B. MC crosses MR curve from above
C. MC crosses MR curve from below
D. Slope of MC is greater than slope of marginal revenue
86. Which of the following would create a natural monopoly?
A. Requirement of a government license before the firm can sell the good or service
B. Technology enabling a single firm to produce at a lower average cost than two or more
firms
C. An exclusive right granted to supply a good or service
D. Ownership of all the available units of a necessary input
87. One is true about Amartya sen’s capability approach
A. The status of poor or non-poor is determined by the availability of commodities
B. What the person can do by the available commodity determines the poor and non-poor
C. Income level is a good measure of development
D. He has no any relation with the definition of development
88. Currently almost half of the populations in Africa have no housing service and every year
they beg from abroad for their food. Based on the above statement which core value of
development is deprived for African citizens.
A. Self esteem
B. Freedom from servitude
C. Sustenance
D. There is no deprivation
89. Based on Solow growth model When does investment adds to capital accumulation

A. when I= sy − (d + n)k

B. when I > sy − (d + n)k

C. when I < sy − (d + n)k

D. investment can’t add capital accumulation
90. Which one is relatively good for less developing countries?
A. high capital output ratio
B. less output per labor
C. less capital output ratio
D. Indeterminate
91. According to Kuznets’s analysis, one of the following is not true from the historic growth
experience of advanced nations
A. there was high rate of factor productivity
B. there was economic structural transformation
C. growth was limited to few portions of world
D. Their growth experience has good importance for current less developing countries
92. One is true about the process of cumulative causation
A. economic social forces tend to narrow economic disequilibrium
B. economic forces act and react to each other to widen disequilibrium
C. economic forces support the infavored region
D. it is not theory of economic growth
93. One of the following growth model, accounts under development is an external factor, which
is induced by developed nations.
 A. balanced growth model
B. Unbalanced growth model.
C. false paradigm
D. Solow growth model
94. Assume the following condition. Ethiopia has high labor growth rate than her capital
formation, then which one is true about capital output ratio and economic growth.
A. our 𝜽 will be less and growth will be achieved
B. our 𝜽 will be high and growth will be achieved
C. our 𝜽 will be less and growth will not be achieved
D. there is no relationship between capital output ratio and growth
95. one of the following is true about low level of equilibrium trap
A. population growth can trap economic growth
B. population growth has no effect with economic growth
C. population growth and economic growth are two different variables and they have no
relation
D. none
96. Identify the correct statement which is important the for functioning of lewis growth theory
A. urban wage rate which is higher than average product of labor in rural sector
B. capital intensive technology in urban sector
C. immobile labor
D. dissaving in urban sector
97. One is true in graphical demonstration of Solow growth model.
A. ∆k=0 at the equality point of s.f(k) and f(k)
B. ∆k=0 at the equality point of f(k) and dk
C. ∆k=0 at equality point of s.f(k) and dk
D. ∆k=0 before the equality of s.f(k) and dk
98. Identify the in correct statement about Solow growth model.
A. an increase in saving rate shift production function but not capital consumption line (dk)
B. population growth shifts up capital consumption line and increase k*
C. population growth can’t shifts production function
D. population growth increases capital consumption /depreciation
99. Why balanced investment /growth/ model is criticized?
A. because it tries to balance back ward and modern sector
B. because it gives more emphasis for modern sector
 C. it needs huge capital which is beyond poor nation
D. it focuses on rural sector
100. What is the implication of high capital output ratio in Harrod Dommar model
A. the economy consumes more capital to produce a unit of output and it is capital
intensive
B. the economy consumes less capital to produce a unit of output and it is labor intensive
C. this does not indicate the relationship between capital and output
D. there is capital consumption at all