I.

Write True if the statement is correct or False if it is incorrect

1. CPI is not an indicator of the price level; it measures the rate of change of price

2. Both nominal and real GDP increase with the rise in the price level

3. Inflation is bad for the economy because goods and services are more expensive

4. GDP is the value of all goods and services produced in the economy

5. If the CPI rises from 125 to 140 from one year to the next, then the rate of inflation is 15 percent.

6. When the economy is operating at its potential level of output, there cannot be Unemployment

7. A higher economic growth rate can be achieved by increasing the amount of factors of production

8. When exports exceed imports, the result is a trade deficit in the economy

9. The business cycle is so named because upswings and downswings in business activity are equal in
terms of duration and intensity

10. If the value of output by citizens outside the country is greater than the value of output by foreigners
inside the country, GNP will be less than GDP

Choose the best answer

11. Which of the following is not a method to calculate Gross Domestic Product?

A. Diminishing cost method C. Expenditure method

B. Product method D. Income method E. None of the above

12. Which of the following was not a classical economist?

A. Adam Smith B. John Stuart Mill C. David Hume D. John Maynard Keynes

13. Which of the following is associated with macroeconomics?

A. An examination of the incomes of Addis Ababa university business and economics school graduates

B. An empirical investigation of the general price level and unemployment rates since 1987

C. A study of the trend of coffee prices since the Second World War

D.A case study of pricing and production in the textbook industry

14. The labor force includes

A. Employed workers and persons who are officially unemployed

Employed workers, but excludes persons who are officially unemployed

C.Full-time workers, but excludes part-time workers

Permanent employees, but excludes temporary employees

15. Real GDP measures

A. Current output at current prices Current output at base year prices D

Base year output at current prices D. Base year output at current exchange rates

16. Which of the following is not a real income understating problem in developing countries compared
to developed countries?

A. The national income account may understate GDP

B. Underreporting income due to fear of tax

C. Distortion in prices is much higher

D. The cost of pollution and environmental degradation are deducted from gross national product get net
GNP

E. None of the above

17. Which of the following statements pertains to macroeconomics?

A. Because the minimum wage was raised, Mr. Biniam decided to enter the labor force

B. A decline in the price of soybeans caused farmer Abebe to plant more land in wheat

C. The national productivity rate grew by 3.5 percent last year

D. The National Bank of Ethiopia increased its interest rate on consumer loans by 1 percentage point

18. The unemployment rate is the

A. Unemployed divided by the number in the labor force C. Labor force divided by population

B. Employed plus unemployed divided by labor force D. Unemployed divided by employed

19. Among approaches used to measure GDP/GNP that is calculated by adding the market value of goods
and services that are currently produced by each sector of the economy

A. Value added approach B. Income approach C. Product approach D. A and C

20. Macroeconomics can best be described as the

A. Analysis of how a consumer tries to spend income

B. Study of the large aggregates of the economy or the economy as a whole

C. Analysis of how firms attempt to maximize their profits

D. Study of how supply and demand determine prices in individual markets

21. Which of the following country did NOT suffer from financial crises in the 1990s?

A. Singapore B. Russia C. Mexico D. Argentina

22. Mekdes voluntarily quit her job as an insurance agent to return to school full-time to earn an MBA
degree. With degree in hand she is now searching for a position in management. Mekdes presently is

A. Cyclically unemployed C. Frictionally unemployed

B. Structurally unemployed D. Not a member of labor force

23. All of the following are important macroeconomic variables except

A. Real GDP B. Marginal rate of substitution C. Unemployment rate D. Inflation rate

24. Graph

The diagram above illustrates the pattern of

A. Wage movements over time C. Economic growth patterns

B. Price level movements D Business cycles

25. A peak in the business cycle

A. Is a temporary minimum point C. Is a temporary maximum point

B. Occurs when inflation rate is lowest D. Occurs when the unemployment rate is its greatest

26. Nominal GDP is

A. The sum of all monetary transactions that occur in the economy in a year

B. The sum of all monetary transactions involving final goods and services that occur in the economy in a
year

C. The amount of production that occurs when the economy is operating at full employment

D. Money GDP adjusted for inflation

30. The unemployment rate in an economy is 6%. The total population of the economy is 290 million, and
the size of the civilian labor force is 150 million. The number of unemployed workers in this economy is

A. 24 million B. 6 million C. 12 million D. 9 million

31. Ahmed reads in today's Addis Zemen paper that the Consumer Price Index (CPI) for October of 2015
was 120, and that for October of 2016 it is 140.

Based on this information, Ahmed can conclude that the current rate of inflation is
A. 20 percent B. 14 percent C. 17 percent D. 12 percent

34. Which of the following is not a measure of Human Development Index?

A. Life Expectancy B. Literacy Rate C. Sex Ratio D. Gross Enrolment

35. Which of the following is an important demographic factor that can influence the labor force
participation rate?

A. Age B. Religion C. Race D. Citizenship status

36. Which is the school of economic thought that emerged as a result of the Great Depression?

A. Classical economics B. Keynesian economics C. Marxian economics D. Neoclassical economics

37. The consumer price index is used to

A. Track changes in the level of wholesale prices in the economy

B Monitor changes in the cost of living

C. Monitor changes in the level of real GDP

D. Track changes in the stock market

40. When the price levels of goods and services are falling continuously, this phenomenon is called___

A. Deflation B. Inflation C. Stagflation D. None

41. Which of the following factors is NOT a cause of hyperinflation?

A. Wars and other political and social disruptions C. collapse in aggregate supply

B. Printing too much money D. All

42. After raising two children, Zahra has started looking for a job and sent out a few job applications.
What type of, unemployment is she experiencing?

A. Frictional unemployment C. Cyclical unemployment

B. Structural unemployment D. Zahra would not be counted as unemployed as she is not in the labor
force

53. Which of the following is true of a monetarist approach to economics?

A. Central banks should not attempt to control interest rates or the value of a currency and ideally central
banks should not exist

B. Governments should not engage in regulation of financial market activities under any circumstances

C. Price stability should be the utmost concern of central banks

D. A return to the gold standard would be optimal

54. Which of the following is true and considered to be a basic principle of the Keynesian framework?

A. Aggregate savings equals aggregate expenditures

B. Aggregate income equals aggregate expenditures

C. Aggregate savings equals aggregate investment

D. Aggregate income equals aggregate investment

55. An increase in the CPI from 200 to 225 would indicate an annual rate of measured inflation of

A. 1.3% B. 25% C. 12.5% D. 200% E. 225%

56. How can neoclassical economic thought be generally classified?

A. As a microeconomic discourse C.As an international economic discourse

B.As a macroeconomic discourse D.As a pure synthesis of micro and macroeconomics

57. Which of the following statements regarding the term “neoclassical synthesis” is false?

A. Initial neoclassical synthesis was a term used to denote the consensus view of macroeconomics that
emerged in the 1950s

B. The neoclassical synthesis viewed the decisions of firms and individuals as largely rational and
capable of being studied using standard models from microeconomics

C. The neoclassical synthesis was of the view that prices and wages are sticky, meaning they do not clear
markets quickly

D. The neoclassical synthesis agreed with neoclassical economics that full employment could be expected
under a system of laissez-faire

58. If your monthly salary in 2000 was 5000 birr, what was the equivalent salary in 2015? Assume the
CPI in 2000 was 136.2, and in 2015 it was 177.1

A. 6000 B. 5500 C. 6500 D. 575

59. Answer the next question on the basis of the following data. All figures are in billions of Birr.
Gross investment 18
National income 100
Net exports 2
Personal income 85
Personal consumption expenditures 70
Saving 5
Government purchases 20

What is the gross domestic product for the above economy is:

A.100 Birr B.110 Birr C. 95 Birr D. 107 Birr

60. Which economics thought believed that the business cycle can be managed by active government
intervention through fiscal policy

A. Monetarist B. Classical C. Neoclassical D. Keynesian

61. An economics thought argued that it is monetary policy and not fiscal policy that addresses the
macroeconomic problems is

A. Keynesian B. Classical C. Neoclassical D. Monetarist

62. If the national economy is closed, i.e. a country has no interaction with the rest of the world, then,

A. AGNP > GDP B. GNP =GDP C. GNP < GDP D. All

Part III. Matching

When prices rise uncontrollably at an alarming A. Balance of payment

high rate with quadruple or four digit inflation rate
of above 1000% per annum

Volume of private foreign investment and public B. Creeping inflation

grants and loans that flow into and out of a country
over a given period

When prices rise rapidly at the rate of 10 to 20% C. Galloping inflation

per year

When the price s rise slowly in 3% or less per D. Capital account

annum

Difference between export and the import of goods E. Balance of trade

and services of a country for a given period

The systematic record of a nation's financial F. Walking inflation

transactions with the outside world

When prices rise moderately in single digit (3% G. Running inflation

9%) per annum

When prices rise by double or triple digit inflation H. Hyperinflation

rates of more than 20% but less than 1000% for a
short period of time