Economics model exit exam 2024

Question 1

What are the main factors that drive the correlation between physical and human capital and economic
growth?

a.

High levels of education and health.

b.

Large domestic markets and abundant resources.

c.

Strong economic self-reliance.

d.

Omitted factors affecting both investment and schooling.

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The correct answer is: Omitted factors affecting both investment and schooling.

Question 2
Fractional reserve banking occurs when

a.

some depositors lose their deposits through poor banking management.

b.

a bank has reserves which exceed its deposits.

c.

a bank has reserves which are less than its deposits.

d.

a bank has reserves which are equal to its deposits.

Feedback

The correct answer is: a bank has reserves which are less than its deposits.

Question 3

WTO negotiations address trade restriction with all except one

a.

Binding tariff rate.

b.

By reducing tariff rates through multilateral negotiations.

c.

None

d.

By eliminating none tariff barriers.

Feedback

The correct answer is: None

Question 4

An economy experiencing liquidity trap most likely tends to have:

a.

Low interest rate with higher investment spending.

b.

High demand for money with low aggregate demand for goods and services.

c.

Low saving rate which is mainly caused by the low interest rate.

d.

Highly inelastic demand for money.

Feedback

The correct answer is: High demand for money with low aggregate demand for goods and services.

Question 5
Which of the following statements is not true with regard to the view of classical and Keynesians
economists?

a.

None

b.

With regard to the financial market for Classical saving and investment are brought into equilibrium by
the interest rate and investment responds to the interest rate.

c.

Saving and investment are brought into equilibrium by changes in income and Investment is not
influenced by a mere change in interest rate for Keynesians.

d.

With regard to the labor market classical contend that labor demand and labor supply are brought into
equilibrium by the real wage.

Feedback

The correct answer is: None

Question 6

Question text

If a country experiences a rapid increase in per-capita income due to discovery of new oil reserves then it
is experiencing:

a.

Development but not growth.

b.

Growth but not necessarily development.

c.

Neither growth nor development.

d.

Both growth and development.

Feedback

The correct answer is: Growth but not necessarily development.

Question 7

The demand for a factor of production depends on one of the following except _________.

a.

The price of the factor

b.

The marginal productivity of the factor

c.

The attitudes of individuals

d.

The technology of production

Feedback

The correct answer is: The attitudes of individuals

Question 8

How do neo-Malthusian perspectives differ from classical Malthusian theory regarding population
growth and economic development?

a.

Neo-Malthusian perspectives emphasize the role of technological innovation in overcoming resource

constraints while classical Malthusian theory predicts inevitable population checks.

b.

Neo-Malthusian perspectives emphasize the importance of population control measures while classical
Malthusian theory emphasizes the role of education and empowerment in reducing fertility rates.

c.

Neo-Malthusian perspectives focus on the role of government intervention and social policies in
controlling population growth while classical Malthusian theory advocates for natural population checks
such as famine and disease.

d.

Neo-Malthusian perspectives argue that population growth leads to economic prosperity through
increased demand and innovation while classical Malthusian theory suggests that population growth
leads to resource scarcity and economic decline.

Feedback

The correct answer is: Neo-Malthusian perspectives focus on the role of government intervention and
social policies in controlling population growth while classical Malthusian theory advocates for natural
population checks such as famine and disease.

Question 9
The observed fact from the household income consumption the confirms that

a.

The marginal propensity to consume is between -1 and 1

b.

The marginal propensity to consume is between -1 to 0

c.

The marginal propensity to consume is equal to 0

d.

The marginal propensity to consume is between 0 and 1

Feedback

The correct answer is: The marginal propensity to consume is between 0 and 1

Question 10

The main factors, which explain the difference in the values of the NPV IRR and BCR assumed different in
economic analysis and financial analysis except?

a.

None

b.

The prices used in the valuation of inputs and output

c.

The items considered as inputs and outputs of the project

d.

The procedure for undertaking economic analysis differ that of financial analysis

Feedback

The correct answer is: None

Question 11

If an individual sells a government bond to central bank and an individual hold in the form of currency
instead of depose at commercial bank

a.

the monetary base will rise, but reserves will remain unchanged.

b.

reserves will fall but the monetary base will remain unchanged

c.

the monetary base will rise, but currency in circulation will remain unchanged.

d.

reserves will rise but the monetary base will remain unchanged

Feedback

The correct answer is: the monetary base will rise, but reserves will remain unchanged.
Question 12

Which of the following statement is not correct with the view of new classical economists?

a.

They believe that economic agents maximize i.e households and business firms make optimal decisions.

b.

Expectations of the future are rational and agents forecast of the future are on average accurate.

c.

They believe that government intervention destabilizes the economy.

d.

They believe that markets may not clear even if agents are rational and optimizing.

Feedback

The correct answer is: They believe that markets may not clear even if agents are rational and
optimizing.

Question 13

If the distribution of income in Ethiopia is (1, 2, 2, 3, 5), and in Kenya it is (1, 1, 2, 3, 5), and the poverty
line in both countries is 2.5, by the average income shortfall measure which country has more poverty?

a.

Poverty is the same in Ethiopia and Kenya

b.

Kenya

c.

We cannot tell from the information given

d.

Ethiopia

Feedback

The correct answer is: Kenya

Question 14

Which market involves agreements to exchange currencies at a future date at a predetermined price?

a.

Options market

b.

Futures market

c.

Forward market

d.

Spot market
Feedback

The correct answer is: Forward market

Question 15

What activity involves reducing the risk of currency fluctuations?

a.

Arbitraging

b.

Hedging

c.

Speculation

d.

Trading options

Feedback

The correct answer is: Hedging

Question 16

Question text

The sign definiteness of Y = f(L, K) = L^2 +3K^2 -3LK is

a.
Positive definite

b.

Indefinite

c.

Negative definite

d.

Neither positive definite nor negative definite

Feedback

The correct answer is: Positive definite

Question 17

Which one of the following is not common to use hypothesis tests to evaluate the performance of a
linear regression model?

a.

Standard error test

b.

Confidence interval test

c.

Students t-test
d.

None of the above

Feedback

The correct answer is: None of the above

Question 18

Given that 𝝙Yt=β0+β1𝝙Xt+ δut-1+εt , which one of the following is NOT TRUE?

a.

If ? is positive and significant, the adjustment is towards the equilibrium

b.

The coefficient of the lagged values of the residuals is expected to be less than one and negative.

c.

If the coefficient is zero, the system is at equilibrium

d.

It is less than 1 because the adjustment towards equilibrium may not be 100%.

Feedback

The correct answer is: If ? is positive and significant, the adjustment is towards the equilibrium

Question 19

Correct
Which one is true about Money and capital market?

a.

money market is a financial market in which new issues of a security, such as a bond or a stock, are sold
to initial buyers

b.

capital market is a financial market in which new issues of a security, such as a bond or a stock, are sold
to initial buyers

c.

capital market instruments have large fluctuation in price than money market instruments

d.

capital market securities are more liquid than money market instruments

Feedback

The correct answer is: capital market instruments have large fluctuation in price than money market
instruments

Question 20

The primary objective of including dummy explanatory variables in a regression model is

a.

To account for qualitative information in econometric analysis

b.

To fix issues of severe multicollinearity

c.

To raise the individual statistical significance of the model

d.

To improve the goodness of fit of the model

Feedback

The correct answer is: To account for qualitative information in econometric analysis

Question 21

A panel data set in which data is available for each observation for every time period under consideration
is specifically known as

a.

Balanced Panel

b.

Micro Panel

c.

Unbalanced Panel

d.

Macro Panel
Feedback

The correct answer is: Balanced Panel

Question 22

The ultimate goal of econometric analysis is often to:

a.

Eliminate the need for economic theories

b.

Prove economic theories wrong

c.

Inform policy-making with empirical evidence

d.

Provide a clear direction for economic research

Feedback

The correct answer is: Inform policy-making with empirical evidence

Question 23

Which one of the following statistical problems most likely occurs due to inclusion of too many dummy
variables in a regression model ?

a.

Multicollinearity
b.

Autocorrelation

c.

Endogeniety

d.

Hetroscedasticity

Feedback

The correct answer is: Multicollinearity

Question 24

Which of the following variables affects demand for foreign currency in the foreign exchange market?

a.

All of the above

b.

Domestic interest rates

c.

Domestic inflation rates

d.

Economic growth rates

Feedback

The correct answer is: All of the above

Question 25

Which one of the following is INCORRECT about a stochastic process and a realization?

a.

Stochastic process takes any kind of values at random, while realization is not.

b.

A stochastic process is what will happen on a specific variable over time, while a realization is what has
already happened.

c.

Realization is the ultimate objective that we want to learn about in time series analysis.

d.

Realization refers to sample while stochastic process is a population.

Feedback

The correct answer is: Realization is the ultimate objective that we want to learn about in time series
analysis.

Question 26
The basic difference between the cardinalist and ordinalist school of analyzing utility is___________.

a.

The ordinalists assume money as a convenient measure of utility

b.

On the scale of measurement where the cardinalist used ratio scale and the ordinalist used ordinal scale.

c.

On the optimization of consumer utility (suggests different way of maximizing utility).

d.

On the measurability of utility i.e. the cardinalist says utility can be measured but the ordinalist says
utility cannot be measured.

Feedback

The correct answer is: On the scale of measurement where the cardinalist used ratio scale and the
ordinalist used ordinal scale.

Question 27

Which of the followings are true about the goal of Regional Economic Integration?

a.

Raise cross-border trade & investment

b.
Eliminate barriers to international flow of products, people, or capital with in geographic region.

c.

All

d.

Create real gains in terms of greater choice, lower prices & increased productivity.

Feedback

The correct answer is: All

Question 28

According to Kuznets the identifying characteristic of Modern economic growth is ______

a.

Application of science to problems of economic production

b.

High rates of saving and investment.

c.

Expansion of heavy industry

d.

A rapid decline in population growth rates.

Feedback

The correct answer is: High rates of saving and investment.

Question 29

The amount of deposits that banks must hold in reserve is

a.

excess reserves.

b.

total reserves.

c.

vault cash

d.

required reserves.

Feedback

The correct answer is: required reserves.

Question 30

Regular gathering analyzing and reporting of information that is needed for evaluation or effective
project management is:

a.
Impact evaluation

b.

Evaluation

c.

Forecasting

d.

Monitoring

Feedback

The correct answer is: Monitoring

Question 31

Among the following development concerns which one is not agriculture project focus area?

a.

Raising agricultural productivity

b.

Reducing risk vulnerability and inequality

c.
Helping farmers reach markets and improving their incomes

d.

Transforming the agriculture sector to industrial sector

Feedback

The correct answer is: Transforming the agriculture sector to industrial sector

Question 32

What is the main objective of exchange control by authorities?

a.

To encourage international investment

b.

To promote free market principles

c.

To regulate interest rates

d.

To control the flow of foreign exchange

Feedback

The correct answer is: To control the flow of foreign exchange

Question 33
In the real world no one country by itself can produce all goods & services which its citizens require for
their consumption so why nations trade with each other?

a.

To take its specialization leads to greater economy of scale and decrease the real prices of goods and
services.

b.

It get a profits that made by the firm involved in international trades.

c.

To get international recognition in politics and economy.

d.

To obtain a cheaper and Varity of goods from international markets.

Feedback

The correct answer is: To get international recognition in politics and economy.

Question 34

An equilibrium condition for national income model is given by( Y) =( 𝝰 +I0 + G0)/(1 – 𝝱 ), where Y is
equilibrium level of national income, 𝝰 is autonomous consumption, is marginal propensity to consume,
I0 is exogenous national investment and G0 is exogenous national government expenditure. Then what is
the magnitude of government expenditure multiplier of the economy?
a.

1/1-𝝱+𝝱t

b.

𝝱/1-𝝱

c.

-𝝱/1-𝝱+𝝱t

d.

-𝝱/1-𝝱

Feedback

The correct answer is:

-𝝱/1-𝝱

Question 35

The most-favored nation clause of the WTO requires that each member must

a.

All of the above

b.

Offer some trade concession to any other member country offering it a trade concession.

c.

Choose one foreign member as its most-favored trading nation and give that country its most generous
trade concessions.

d.

Offer to all member countries the same trade concessions offered to any member country.

Feedback

The correct answer is: Offer to all member countries the same trade concessions offered to any member
country.

Question 36

Given an estimated model of the form Y ̂_i=α ̂+β ̂_1 X_1i+β ̂_2 X_2i+e_i, if the coefficient, β ̂_1 is proved
to be statistically different from zero using the t-test of the hypothesis that β_1=0. The implication is that

a.

The variable, X_1 influences the dependent variable, Y.

b.

The variable, X_1 is the only variable that determines the dependent variable, Y.

c.

The variable, X_2 influences the dependent variable, Y.

d.

The variable, X_1 does not affect the dependent variable, Y.

Feedback

The correct answer is: The variable, X_1 influences the dependent variable, Y.

Question 37

According to Keyness liquidity preference theory since the expected return on money was zero,

a.

People would hold money as a store of wealth only when forced to by government policy.

b.

People would never hold money as a store of wealth.

c.

People would always hold money as a store of value since its expected return is constant.

d.

People would hold money as a store of wealth when the expected return on bonds was negative.

Feedback

The correct answer is: People would hold money as a store of wealth when the expected return on bonds
was negative.

Question 38
In the context of agricultural trade, what does the term dumping refer to?

a.

Investing in agricultural infrastructure in developing countries

b.

Importing agricultural products to meet domestic demand

c.

Exporting agricultural products at prices lower than the domestic market price

d.

Establishing fair trade agreements with agricultural producers

Feedback

The correct answer is: Exporting agricultural products at prices lower than the domestic market price

Question 39

Which one of the following is not necessarily true?

a.

It is possible to add discounted costs and benefits which occur at different period of time

b.

Discounting factor point out how much one birr in the future worth today.
c.

Using single discount rate indicates an increase in time preference of benefits at constant rate

d.

An individual has marginal rate of time preference if he is indifferent b/n current and future income.

Feedback

The correct answer is: Using single discount rate indicates an increase in time preference of benefits at
constant rate

Question 40

Suppose the Central bank has bought the $200 bond from the Commercial Bank of Ethiopia that
previously had no excess reserves, deposits in the banking system can potentially increase by

a.

200

b.

200 times required reserve ratio

c.

200 times the deposit expansion multiplier

d.

100

Feedback
The correct answer is: 200 times the deposit expansion multiplier

Question 41

The stationary point for a function Y = 60X – 0.2x2 is

a.

Y = 150

b.

X = 150

c.

X = 60

d.

Y = 60

Feedback

The correct answer is: X = 150

Question 42

Which one of the following is not true about indifference curves?

a.
An indifference curve is a locus of points representing different consumption bundles of two commodities

b.

The ordinal utility approach explained with the help of indifference curves

c.

A consumer derives the same level of utilities from various combinations of goods on the same
indifference curve

d.

A consumer derives different utilities among different consumption bundles of two commodities on the
same indifference curve

Feedback

The correct answer is: A consumer derives different utilities among different consumption bundles of two
commodities on the same indifference curve

Question 43

Which one of the following is not properties of OLS estimators in small sampling distribution?

a.

Linearity

b.

Unbiasedness

c.

Consistency
d.

Minimum Variance

Feedback

The correct answer is: Consistency

Question 44

Identify the wrong statement about the long run equilibrium of a monopolist.

a.

The firm is over utilizing its plant size if it operates at the minimum of LAC.

b.

The firm immediately leaves the market if it incurs loss in the long run.

c.

The firm is under utilizing its plant if it operates in the rising part of LAC curve.

d.

Operate at the optimal plant size in the long run.

Feedback

The correct answer is: Operate at the optimal plant size in the long run.

Question 45
How does the concept of demographic dividend contribute to our understanding of population growth
and economic development?

a.

The demographic dividend highlights the potential economic benefits of a youthful population age
structure including increased labor force participation and productivity.

b.

The demographic dividend emphasizes the need for targeted policies to address the challenges
associated with an aging population including healthcare and pension reforms.

c.

The demographic dividend underscores the importance of reducing fertility rates and dependency ratios
to achieve sustainable economic growth.

d.

The demographic dividend challenges the notion that population growth is always detrimental to
economic development by highlighting the positive effects of population dynamics on innovation and
entrepreneurship.

Feedback

The correct answer is: The demographic dividend highlights the potential economic benefits of a youthful
population age structure including increased labor force participation and productivity.

Question 46

Which one of the following is not true about the oligopoly market?

a.

Firms are independent

b.

The existence of entry barriers.

c.

The existence of excessive expenditure on advertising

d.

The existence of price rigidity

Feedback

The correct answer is: Firms are independent

Question 47

According to the theory of liquidity preference when money supply remains constant

a.

Higher money demand puts upward pressure on the equilibrium interest rate whereas higher interest
rate puts downward pressure on money demand.

b.

Higher interest rate decreases the opportunity cost of holding money.

c.

Higher money supply puts upward pressure on the equilibrium interest rate.

d.
Higher money demand puts downward pressure on the equilibrium interest rate whereas higher interest
rate puts upward pressure on money demand.

Feedback

The correct answer is: Higher money demand puts upward pressure on the equilibrium interest rate
whereas higher interest rate puts downward pressure on money demand.

Question 48

Which one of the following is incorrect about game theory?

a.

It involves two or more firms with conflicting interests.

b.

It is instrumental in analyzing the behaviors of rival firms in an oligopoly market.

c.

It helps to decide the optimal level of price under conditions of rivalry.

d.

If the loss of one firm is the gain of the other then this is a fair game.

Feedback

The correct answer is: If the loss of one firm is the gain of the other then this is a fair game.

Question 49

-----is a contractual agreement by the borrower to pay the holder of instrument fixed dollar amounts at
regular intervals (interest and principal payments) until a specified date.
a.

Dividend

b.

Equity instruments

c.

common stock

d.

debt instrument

Feedback

The correct answer is: debt instrument

Question 50

Which one of the following describes the relationship between the market value of a firms securities and
the replacement cost its physical asset?

a.

Accelerator theory of investment

b.

Neoclassical theory of investment

c.
Keynesian theory of investment

d.

Tobins q theory of investment

Feedback

The correct answer is: Tobins q theory of investment

Question 51

Which one of the following is true about protective tariff

a.

A tariff when country A imposes duties against the products from country B due to this country B will
retaliate and levy duties on goods imported from country A.

b.

It designed to insulate import-competing producers from foreign competition.

c.

The tariffs that are imposed primarily to generate revenue for the government

d.

The type of tariff imposes by importer country to offset export subsiding in the country of origin.

Feedback

The correct answer is: It designed to insulate import-competing producers from foreign competition.

Question 52
Which one of the following expression is not the characteristic of a project?

a.

A project is an intermediate operational element unit like public investment programs

b.

Projects use a multiple of resources and needs well planned resource management

c.

Projects are organizationally geographically and time bounded

d.

Projects have specific of benefits that can be identified quantified and valued monetarily.

Feedback

The correct answer is: A project is an intermediate operational element unit like public investment
programs

Question 53

According to the permanent income hypothesis which of the following would have the greatest impact
on the current consumption of a 30-year-old college teacher?

a.

A promotion to associate professor combined with a 2000 birr/year raise.

b.
A 5000 birr advance payment for a book that will take two years to write.

c.

An inheritance of 1000 birr from a distant uncle.

d.

Winning 3000 birr in the national lottery.

Feedback

The correct answer is: A promotion to associate professor combined with a 2000 birr/year raise.

Question 54

Developing countries that emphasize the production of raw materials or agricultural goods may realize a
long-run deterioration in the international terms of trade because of

a.

declines in the supplies of these products on world markets

b.

highly elastic demand for these products in advanced countries

c.

sluggish demand for these products in advanced countries

d.

relatively low import tariffs maintained by advanced countries

Feedback
The correct answer is: sluggish demand for these products in advanced countries

Question 55

The production-smoothing motive for holding inventories suggests that:

a.

Firms hold inventories in order to produce more output.

b.

When sales are low firms produce more than they sell and put the extra goods in inventories.

c.

When a product is only partly completed its components are counted as part of the firms inventory.

d.

Firms hold inventories to avoid losing sales.

Feedback

The correct answer is: When sales are low firms produce more than they sell and put the extra goods in
inventories.

Question 56

The demand curve for a firm which is a perfect competitor in the factor market and monopolist in the
product market and buying several variable inputs is _____________.

a.

A curve derived from shifting MRP curves as the wage rate changes.
b.

A curve derived from shifting VMP curves as the wage rate changes.

c.

The VMP curve itself

d.

The MRP curve itself

Feedback

The correct answer is: A curve derived from shifting MRP curves as the wage rate changes.

Question 57

How do governments directly intervene in the foreign exchange market?

a.

By issuing government bonds

b.

By setting interest rates

c.

By imposing tariffs on imports

d.

By buying or selling domestic or foreign currency reserves

Feedback

The correct answer is: By buying or selling domestic or foreign currency reserves

Question 58

Free international trade maintain that an open economy that it provides all of the following except:

a.

A wider selection of products for consumers

b.

The utilization of the most efficient production methods

c.

Increased competition for world producers.

d.

reducing competition and raising profits leads.

Feedback

The correct answer is: reducing competition and raising profits leads.

Question 59

If a situation exists where it is not profitable for any single producer to expand production because of
market limitation then the best strategy for the country to adopt would be ______

a.

Unbalanced growth strategy

b.

Employment growth strategy

c.

New growth strategy.

d.

Balanced growth strategy

Feedback

The correct answer is: Balanced growth strategy

Question 60

The market demand curve faced by six Cournot-type firms is given as P = 840 - 0.5Q. How much is the
amount of output of each oligopoly firm is supposed to produce and sell?

a.

168

b.

120

c.

140

d.
100

Feedback

The correct answer is: 120

Question 61

A firm under perfectly competitive market structure earn only normal profit in the long run due to:

a.

The presence of large numbers of buyers and sellers

b.

The firm faces a perfectly inelastic demand curve

c.

The existence of free entry and exit in the market

d.

The price maker characteristics of the firm

Feedback

The correct answer is: The existence of free entry and exit in the market

Question 62

How do developing countries differ from each other?

a.
They are small countries with limited markets and resources.

b.

They all have similar developmental problems and share common characteristics.

c.

They are all large countries with complex problems of national cohesions and administration

d.

They have diverse structural features and varying level of population growth, resource availability and
economic dependence.

Feedback

The correct answer is: They have diverse structural features and varying level of population growth,
resource availability and economic dependence.

Question 63

If the central bank making discount loan which one of the following is false

a.

Central bank increases its liability

b.

Central bank provide reserve to the banking system

c.

Central bank increases currency held by the public

d.

Central banks asset will be reduced

Feedback

The correct answer is: Central banks asset will be reduced

Question 64

All of the following are correct EXCEPT

a.

VECM only provides us a long-run relationship since it is applicable incase co-integration exists among
the variables under study.

b.

VECM is a special kind of VAR model which is used when variables are co-integrated.

c.

VAR model considers all variables of the model as endogenous.

d.

VAR is a multiple equation model, while ARDL is not.

Feedback

The correct answer is: VECM only provides us a long-run relationship since it is applicable incase co-
integration exists among the variables under study.

Question 65
Which one of the following is not true about the rental firms investment decisions?

a.

If the MPK is below the cost of capital the firm will let its capital stock to shrink.

b.

If the MPK equals to the cost of capital, net investment will increase.

c.

At the steady state level of capital stock the firm will not change its capital stock.

d.

If the MPK is above the cost of capital the firm will increase its capital stock.

Feedback

The correct answer is: If the MPK equals to the cost of capital, net investment will increase.

Question 66

Which of the following exclude from government purchase component of aggregate expenditure?

a.

National defense expenditure

b.

Government spending on road construction

c.

Salary of government employees

d.

Transfer payment

Feedback

The correct answer is: Transfer payment

Question 67

The cross-partial(?^2 Q)/?K?L of production function Q = 12K + 0.6K^2 L + 2.4L^2 is

a.

1.2K

b.

4.8L

c.

1.2L

d.

4.8K

Feedback

The correct answer is: 1.2K

Question 68
Which one of the following is the most common errors of econometric model specification?

a.

The omissions of some equations (like, in simultaneous equations model).

b.

The mistaken mathematical form of the functions.

c.

Omissions of some important variables from the function.

d.

All

Feedback

The correct answer is: All

Question 69

In Solow growth model what is the main assumption about the production process?

a.

Labor and capital are not substitute

b.
Price and wages are not flexible

c.

One composite commodity is produced

d.

Output is net output after depreciation of capital

Feedback

The correct answer is: One composite commodity is produced

Question 70

The law of diminishing returns begins to operate when

a.

MC begins to rise

b.

MP begins to rise

c.

TP begins to fall

d.

AP begins to decline

Feedback
The correct answer is: AP begins to decline

Question 71

If the capital-labor ratio changes from 4 units to 8 units and marginal rate technical substitution changes
from 1 unit to 2 units then degree of factor substitutability of the two inputs are

a.

Imperfect complement inputs

b.

Perfect complement inputs

c.

Perfect substitute inputs

d.

Imperfect substitute inputs

Feedback

The correct answer is: Perfect substitute inputs

Question 72

Which one of the following defines the effects of technical progress correctly?

a.

Labor depending technical progress can be shown by increase in MRTSKL

b.

Inward shift in isoquant curve shows the ability of the firm to produce the same output by combination of
inputs used before.

c.

Technological progress upward shifts the production function but inward shifts the isoquant curve.

d.

A producer can produce the same output using less combination of factors is described by an upward
shift in production function

Feedback

The correct answer is: Technological progress upward shifts the production function but inward shifts the
isoquant curve.

Question 73

Assume that two countries A and B both have the per-worker production function y=?k, neither has
population growth or technological progress, depreciation is 5 percent of capital in both countries and
country A saves 10 percent of output whereas country B saves 20 percent. If A starts out with a capital
per worker of 4 and B starts out with a capital per worker of 2, then what will happen in the long run in
both countries?:

a.

Both A and B will have capital per worker of 4.

b.

Both A and B will have capital per worker of 16.

c.
As capital per worker will be 4 whereas Bs will be 16.

d.

As capital per worker will be 16 whereas Bs will be 4.

Feedback

The correct answer is: As capital per worker will be 4 whereas Bs will be 16.

Question 74

Good project identification should incorporate the following activities except?

a.

Demonstrate the alternative and that further resources should be devoted for preparation.

b.

Highlight pertinent issues and propose solutions;

c.

Establish clearly the follow ?up steps for full preparation.

d.

Justify the project in a sectoral context;

Feedback

The correct answer is: Establish clearly the follow ?up steps for full preparation.

Question 75
It helps to solve for critical values of optimization problems involving inequality constraints is referred as:

a.

Eulers theorem

b.

None

c.

Youngs theorem

d.

Kuhn Tucker conditions

Feedback

The correct answer is: Kuhn Tucker conditions

Question 76

Which of the following is not true about IS and LM curve?

a.

The Keynesian cross is a building block for the IS curve the theory of liquidity preference is a building
block for the LM curve.

b.

Changes in fiscal policy that raise the demand for goods and services shift the IS curve to the right.
c.

Changes in fiscal policy that reduce the demand for goods and services shift the IS curve to the right.

d.

Decreases in the supply of real money balances shift the LM curve upward.

Feedback

The correct answer is: Changes in fiscal policy that reduce the demand for goods and services shift the IS
curve to the right.

Question 77

If the supply curve of input X has zero price elasticity what can you conclude about the quantity supplied
of input X?

a.

Quantity supplied input X is a constant.

b.

Quantity supplied input X is > 0

c.

Quantity supplied of input X is > 1

d.

Quantity supplied input X is = 1

Feedback

The correct answer is: Quantity supplied input X is a constant.

Question 78

A function of money which is used to pay for goods and services is

a.

Money used as a unit of account

b.

Money used as standard of deferred payment

c.

Money used as a medium of exchange

d.

Money as Store of Value

Feedback

The correct answer is: Money used as a medium of exchange

Question 79

Let the market equilibrium for a commodity is given by 3+3Y-3P+3T=0 where P price of the commodity, Y
is income of a consumer and T is tax on the commodity supplied. If P,Y and T are dependent to each other
and all derivatives are continuous, then the partial derivative of T with respect to P is equal to:

a.

3
b.

c.

-1

d.

None

Feedback

The correct answer is: 1

Question 80

Which one of the following types of data consist of observations of a single subject at multiple time
intervals:

a.

Panel data

b.

Pooled data

c.

Cross-sectional data

d.

Time series data

Feedback

The correct answer is: Time series data

Question 81

Approximates the marginal impact caused by a small change in the constant of the constraint on the
objective function of constrained optimization problems

a.

Bordered Hessian

b.

Kuhn Tucker conditions

c.

Eulers theorem

d.

Youngs theorem

Feedback

The correct answer is: Bordered Hessian

Question 82

What does a fixed exchange rate regime entail?

a.
The exchange rate fluctuates freely based on supply and demand

b.

The exchange rate is determined by market forces

c.

The exchange rate is determined by a basket of currencies

d.

The exchange rate is pegged to a specific value by the government or central bank

Feedback

The correct answer is: The exchange rate is pegged to a specific value by the government or central bank

Question 83

Which economic theory suggests that agricultural productivity growth leads to economic development by
freeing up labor for industrialization?

a.

Dependency theory

b.

Neoclassical economics

c.

Structural transformation theory

d.

Modernization theory

Feedback

The correct answer is: Structural transformation theory

Question 84

What are some of the criticism of the Physical Quality of Life of index (PQLI) in measuring development?

a.

Methodological criticism such as the assumptions that all components of the index are equally important
in capturing the defined aspects of concept.

b.

Conceptual criticisms such as the argument that different components of need satisfaction cannot be
traded off against each other and therefore cannot be aggregated into a single measure.

c.

Conceptual criticisms such as the argument that PQLI only measures economic growth.

d.

Methodological criticism such as the assumptions that PQLI measures only poverty in advanced capitalist
countries.

Feedback

The correct answer is: Conceptual criticisms such as the argument that different components of need
satisfaction cannot be traded off against each other and therefore cannot be aggregated into a single
measure.

Question 85
Which of the following is a role of the exchange rate?

a.

Controlling inflation rates

b.

Determining domestic interest rates

c.

Regulating government spending

d.

Influencing international travel decisions

Feedback

The correct answer is: Influencing international travel decisions

Question 86

The aggregate supply curve shows the relationship between

a.

The inflation rate and the unemployment rate

b.

The supply of goods by firms and the price of goods relative to the price of nonmonetary asset
c.

The price level and the aggregate amount of output that firms supply

d.

The real interest rate and the aggregate amount of output that the firm supply

Feedback

The correct answer is: The price level and the aggregate amount of output that firms supply

Question 87

Suppose that the National Bank of Ethiopia increase money supply, how does this policy affect the
exchange rate and interest rate dynamics in an open economy?

a.

It causes both the exchange rate and interest rates to decrease simultaneously.

b.

It results in an appreciation of the domestic currency and a decrease in interest rates.

c.

It leads to a depreciation of the domestic currency and an increase in interest rates.

d.

It has no effect on the exchange rate but leads to a decrease in interest rates.

Feedback
The correct answer is: It leads to a depreciation of the domestic currency and an increase in interest
rates.

Question 88

Among the following issues which one is not the factor that entails differences between financial and
economic analysis of projects?

a.

The impact of the project on savings

b.

The consideration for merit goods

c.

The effect of the project on income redistribution

d.

Estimation of profitability at different currencies

Feedback

The correct answer is: Estimation of profitability at different currencies

Question 89

Any two stochastic processes X_t and Y_t are mostly likely tends to be co-integrated if

a.

They have similar long-run trends which converge over time.

b.

They are integrated of order one, I(1).

c.

They share similar short-run trend that may diverge over-time

d.

X_t is I(1) while Y_t is I(0).

Feedback

The correct answer is: They have similar long-run trends which converge over time.

Question 90

Which one of the following is true about the classical quantity theory of money?

a.

Velocity of money tends to fluctuates with interest rate.

b.

Movement or change in general price level result solely from change in the interest rate.

c.

Movement or change in general price level result solely from change in the money supply.

d.
An increase in interest rates will cause the demand for money to fall.

Feedback

The correct answer is: Movement or change in general price level result solely from change in the money
supply.

Question 91

The price leader in an oligopoly market does all of the following except _____________.

a.

Stepping in to fill the gap between market demand and followers supply.

b.

Allowing the follower firms to set their respective prices.

c.

Allowing the follower firms to charge the price set by the leader.

d.

All of the above

Feedback

The correct answer is: Allowing the follower firms to set their respective prices.

Question 92

Which one of the following is not true?

a.
Classical school argues that disequilibrium in the various markets that are likely to cause unemployment
is a short run phenomenon that can be addressed through the interaction of market forces.

b.

Keynesians argue that markets are not always self-regulating output fluctuations are partly caused by
private sector behavior.

c.

According to the Classical school of thought prices are unnecessarily flexible and possibly harm certain
segments of the society.

d.

In a Classical school of thought the economy is operating at full employment any change in fiscal or
monetary policy instruments will have nominal value changes only.

Feedback

The correct answer is: According to the Classical school of thought prices are unnecessarily flexible and
possibly harm certain segments of the society.

Question 93

Which one of the following is not true about a risk lover consumer?

a.

They prefer a certain income than a risky uncertain income with high possible return.

b.

They have convex utility of wealth curve.

c.

The marginal utility of generating income is increasing.

d.

Their expected utility is greater than utility on hand.

Feedback

The correct answer is: They prefer a certain income than a risky uncertain income with high possible
return.

Question 94

Despite being employed interchangeably in empirical studies, probit regression is somewhat better
approach than the logistic regression, because of the fact that:

a.

Probit model provides more precise estimates than the logit model.

b.

Probit model depends on simpler probability distribution than the logit model.

c.

Probit model depends on the sigmoid distribution while logit is not.

d.

Probit model makes some variables significant which are found to be insignificant in logistic model.

Feedback

The correct answer is: Probit model provides more precise estimates than the logit model.
Question 95

In managing projects we are normally involved in the following types of management except?

a.

Time management

b.

Scope management

c.

Cost management

d.

None of the above

Feedback

The correct answer is: None of the above

Question 96

Even though members of a market-sharing cartel agree to charge the same price eventually some firms
are found to cheat. The main reason for this cheating behavior could be _______________.

a.

Differences in geographic locations where the firms operate.

b.

Differences in past performances.

c.

Differences in cost conditions of the firms.

d.

Differences in willingness to pay of buyers.

Feedback

The correct answer is: Differences in cost conditions of the firms.

Question 97

Which of the following statements best explains the causes for shifts in Aggregate demand?

a.

Expansionary fiscal policy shifts LM curve outwards to the right

b.

Expansionary fiscal policy shifts IS curve outwards which leads to increase in income

c.

By increasing interest rate expansionary monetary policy leads to increase planned investment.

d.

During expansionary monetary policy: the increments of money supply leads to shifts LM curve inward to
the left.

Feedback
The correct answer is: Expansionary fiscal policy shifts IS curve outwards which leads to increase in
income

Question 98

Which one of the following is not consistent with the objective of making collusion by oligopoly firms?

a.

Standardizing the product

b.

Sharing geographic markets for a product

c.

Joint profit maximization

d.

Setting prices for a product independently

Feedback

The correct answer is: Setting prices for a product independently

Question 99

Mr.Zelalem estimates a model to predict the variation in steel production in Ethiopia, but he fails to
include the world price of steel, because he does not find this data. He wonders if his model suffers from
a specification error. Which problem did he face?

a.

Multicolinearity
b.

All

c.

Omitted Variable problem

d.

Heteroscedasticity

Feedback

The correct answer is: Omitted Variable problem

Question 100

____is a tax that levied as a fixed percentage of the value of the imported goods.

a.

Ad valorem tariff

b.

Effective protection tariff

c.

Specific tariff

d.
Nominal tariff

Feedback

The correct answer is: Ad valorem tariff

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