International Economics I, Revision Questions, By: Bedada Teressa (MSc)

International Economics I

Multiple choice Questions With Answers

Prepared by: Bedada Teressa (MSc)

Department of Economics

June, 2023
Hawassa, Ethiopia

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 International Economics I, Revision Questions, By: Bedada Teressa (MSc)

1. If a country has open economy, then it can be concluded that, it:

A. Has flexible wages and prices
B. Conducts trade with other countries
C. Has flexible interest and exchange rates
D. Is self-sufficient
2. The exchange of goods and services among the residents of a given country is:
A. Domestic or internal trade C. Foreign trade
B. International trade D. External trade
3. Internal trade and foreign trade are different in all of the following except:
A. Factor and product mobility C. Monetary units
B. Economic environment D. None of the above
4. Which one of the following does not cause international trade?
A. Differences in factor endowments
B. Division of labor and specialization
C. Gains form exchange of goods and services
D. Price consistencies
5. International trade forces domestic firms to become more competent in terms of:
A. New product introduction C. Product price
B. Product quality D. All of the above
6. Price differences in different countries can be arise due to:
A. Supply conditions C. Both price and demand conditions
B. Demand conditions D. All of the above
7. If a country is completely more productive or efficient in producing a particular product than
others, then that country has ______ over others.
A. Absolute advantage C. Comparative cost advantage
B. Comparative advantage D. All of the above
8. International trade and specialization are determined by:
A. Absolute advantage C. Absolute cost
B. Comparative advantage D. Production possibility frontier
9. Based on Adam Smith’s theory of absolute advantage, all of the following are correct except:
A. A country that produce with fewer inputs has absolute cost advantage and will be more
productive than others.
B. If input prices are the same in two countries, the country with an absolute advantage has
lower unit cost of production.
C. A country should produce and export products in which it has an absolute advantage.
D. A country should import products in which it has an absolute advantage.
10. Based on David Ricardo’s theory of comparative advantage, which one of the following is
wrong?
A. Each country specializes in the production of a commodity in which its comparative cost
of production is the least.
B. A country will export those commodities in which its comparative costs are high.
C. A country will import those commodities in which its comparative costs are high.
D. Comparative advantage cannot cause foreign trade.

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 International Economics I, Revision Questions, By: Bedada Teressa (MSc)

11. Gains from trade which measured in terms of economic growth and development of
participants is known as:
A. Dynamic gains C. Utility gains
B. Static gains D. Welfare gains
12. International trade promotes economic development; because it:
A. Provides products that cannot be readily found domestically for greater consumer choices
B. Provides employment, shares technical knowhow, generates income, and rises GDP
C. Creates specialization and improves resource utilization
D. All of the above
13. Which of the following is not an assumption of the factor proportions theory?
A. Perfect competition in product and factor markets
B. Homogenous labor and capital in trading countries
C. Different tastes and preferences between countries
D. Constant returns to scale
14. Stolper-Samuelson theorem captures the relationship between:
A. Product prices and factor prices C. Factor supplies and product outputs
B. Factor supplies and product prices D. Factor supplies and pattern of trade
15. According to mercantilists, all of the following are true except:
A. Country’s wealth could be determined by the amount of its gold and silver holdings.
B. Every country should increase its exports and reducing imports.
C. Every country should experience trade surplus.
D. Every country should experience balanced trade.
16. Mercantilists believed that:
A. Exporting goods will leave fewer goods for the local economy.
B. Importing goods is beneficial for the economy.
C. Any kind of trade is a bad trade.
D. Exports are good and imports are bad
17. Which one of the following is false?
A. Mercantilism theory justifies empire building on the expense of others.
B. Application of mercantilism ideology leads to tit for tat policies.
C. Mercantilism is a philosophy of zero sum game.
D. Mercantilism considers the importance of absolute and comparative advantages.
18. Smith and Ricardo argued that, the main determinant of terms of trade and gains from trade is?
A. Supply or production costs C. Government policies
B. Demand for the product D. Institutions
19. The quantity of one good that a country export and the quantity of the other good that a country
import is shown by:
A. Philips curve C. Offer curve
B. Lorenz curve D. Okun’s curve
20. Which one of the following is not the assumption of classicalist absolute advantage?
A. Perfect mobility of factors C. Constant return to scale
B. Balanced trade D. No trade barriers

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 International Economics I, Revision Questions, By: Bedada Teressa (MSc)

21. The theory of absolute advantage ignores all of the following issues in explaining international
trade except:
A. Technological & transportation costs C. Trade protections
B. Labor costs D. Multilateral trade
22. Comparative advantage theory is explained based on all of the following assumptions except:
A. There is free bilateral trade
B. There is no transportation cost and technological change
C. Cost of production is expressed in terms of capital
D. Perfect immobility in factor of production with constant return to scale
23. Which one of the following is not a modern international trade theory?
A. The Factor-Endowment theory C. Factor-Price Equalization Theorem
B. H-O theorem D. Classical theory
24. All of the following are the Prebisch-Singer thesis arguments except:
A. Prices of primary goods decline in relative to manufactured goods in the long run
B. Developing countries terms of trade deteriorates
C. Developing countries terms of trade appreciates over the long run
D. Import substitution industry strategies are necessary
25. Factor endowment theory is developed by:
A. John Stuart Mill C. Adam Smith and David Ricardo
B. Paul Samuelson D. Eli Heckscher and Bertil Ohlin
26. According to H-O theory of international trade, the immediate cause of international trade is:
A. Difference in relative commodities prices in different countries
B. Abundance of resource endowment
C. Comparative advantage
D. Absolute advantage
27. According to H-O theory, the cause of difference in the relative prices of the goods is:
A. Difference in the amount of factor endowments
B. Difference in the relative demand and supply of factors
C. Difference in factor prices
D. All of the above
28. All of the following are the assumption of new trade theory except:
A. Learn by doing C. First move advantage
B. No government intervention D. Economies of scale
29. All of the following are used as international trade policy instruments except:
A. Tariffs, export subsidies, and import quotas
B. Voluntary Export Restraints
C. Regulations of trade in services and restrictions on foreign-owned businesses
D. None of the above
30. All of the following justify the importance or the need for trade protectionism except:
A. Safeguarding infant or strategic home industries
B. Demotion of employment and specialization
C. Protection against dumping and national security
D. Balance of Payments” and “Terms of Trade

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 International Economics I, Revision Questions, By: Bedada Teressa (MSc)

31. A direct limitation of the physical quantity of exports and imports permitted in a country is:
A. Quota C. Subsidy
B. Tariff D. A and B
32. A grant given by a government to domestic import-competing industries that sell their products
overseas is known as:
A. Domestic subsidy C. Tariff
B. Export subsidy D. Quota
33. Trading policy or strategy that focuses on building and developing domestic industries is:
A. Inward looking trade policies C. Tit for tat strategy
B. Outward looking trade strategy D. Zero sum game strategy
34. Countries that follow outward looking trade strategies focus on:
A. International trade C. Lifting subsidies and increasing FDI
B. Reducing protection D. All of the above
35. Who suffers under protectionism trade policy?
A. Governments C. Domestic consumers
B. Domestic producers D. All of them
36. What do governments create when two or more join together and agree to not impose any trade
restriction among the member countries?
A. Free trade agreement C. Protection agreement
B. Political agreement D. None
37. International trade policy helps a country to:
A. Run its trade smoothly, efficiently, and transparently
B. Support the domestic markets by influencing prices
C. Regulate its imports and exports
D. All of the above
38. A charge that a government impose on an importer as a percentage of the value of the imported
product is called:
A. Quota C. Subsidy
B. Tariff D. Externality
39. The two main types of trade policies are:
A. Price and income policies C. Import and export policies
B. Employment and exchange policies D. Fiscal and monetary policies
40. A government policy that designed to influence the amount and direction of goods and services
that a country export and import is:
A. Fiscal policy C. Trade policy
B. Monetary policy D. Price policy
41. Which one of the following is a benefit of free trade policies?
A. Increase in the selection of goods available to the consumers
B. Higher supply and lower prices
C. Economic efficiency and global price stability
D. All of the above

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 International Economics I, Revision Questions, By: Bedada Teressa (MSc)

42. Which of the following is not the benefit of export promoting strategy?
A. Domestic infant industries suffer
B. Larger consumer base
C. Brings in income and foreign currency
D. Trade surplus
43. Governments may limit exports if:
A. Too much of the resource is leaving the country
B. Domestic demand is not satisfied
C. Domestic demand is low than abroad
D. A and B
44. A voluntary export restraint is:
A. Export quota that restricts the quantity of a good that can be exported
B. Export promoting strategy
C. Import tariff
D. Reducing dependency on international trade
45. Local content requirements help to:
A. Reduce a country's dependence on international trade
B. Provide opportunities for domestic production
C. Increase imports to local market
D. A and B
46. The international trade agreement that made among in 1947 to eliminate or to reduce trade
barriers is:
A. WTO C. GATT
B. IMF D. IGAD
47. WTO has established to provide the following functions except:
A. Regulating and facilitating international trade
B. Serving developed countries to meet their trade goals
C. Implementation and administration of world trade policies
D. Promoting cooperation and integration throughout the world
48. The main objectives of international trade institutions include:
A. Reducing inequality
B. Environmental protection and national security
C. Sustainable development
D. All of the following
49. International institutions that were created to support international trade in a fair and
sustainable way that benefits all nations involved are:
A. United nations C. WHO
B. WTO and IMF D. UNESCO
50. Which one of the following is the con of globalization?
A. It increases market for products.
B. It enables the world to share resources, knowledge, and culture.
C. It causes environmental problems and exploitations.
D. It creates job opportunities and money revenues.

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 International Economics I, Revision Questions, By: Bedada Teressa (MSc)

51. The form of economic integration in which trade barriers are eliminated and similar trade
policies are implemented in member countries is:
A. Free trade area C. Common market
B. Customs union D. Economic union
52. Trade liberalization promotes all of the following except:
A. Globalization C. Factor mobility
B. Regional integration D. Trade barriers
53. International economics concerned with:
A. Global and regional economic interactions
B. Patterns and effects of international trade and its policies
C. Global economic development and challenges
D. All of the above
54. The new modern trade theory is attributed to:
A. Paul Krugman C. Samuelson
B. Heckscher and Ohlin D. Stolper and Samuelson

Answers
1 B 12 D 23 D 34 D 45 D
2 A 13 B 24 C 35 C 46 C
3 D 14 A 25 D 36 A 47 B
4 D 15 D 26 A 37 D 48 D
5 D 16 D 27 D 38 B 49 B
6 D 17 D 28 B 39 C 50 C
7 A 18 A 29 D 40 C 51 B
8 B 19 C 30 B 41 D 52 D
9 D 20 A 31 A 42 A 53 D
10 B 21 B 32 B 43 D 54 A
11 A 22 C 33 A 44 A

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 Rift Valley University
Hawassa Campus
Department of Economics
Final Model Exam of Development Economics I to Economics 4th Years Students
1. The most simple and popular method of measuring economic development is to calculate the
trend of gross national product (GNP) at
A. Constant prices
B. Current prices
C. Both of the above
D. None of above
2. Which among the following is a characteristic of underdevelopment?
A. Vicious circle of poverty
B. Investment in human capital formation
C. Growth of industries
D. None of above
3. According to W.W. Rostow, the stages of economic growth are:

A. Five

B. Four

C. Two

D. Three

4. What is the impact of gender inequality on economic development?

A. Gender inequality can be a significant barrier to economic development, as it limits
opportunities for women to participate in the economy, undermines human capital, and leads to
social and political instability.
B. Gender inequality has no impact on economic development.
C. The impact of gender inequality on economic development is neutral.

1
D. Gender inequality can be a facilitator of economic development, as it allows for a more
efficient allocation of resources.
E. None of the above.
5. By __ growth rate of an economy can be speeded up
A. Investment in human capital formation
B. Investment abroad
C. Investment in share market
D. Investment in primary sector
6. What is the impact of education on economic development?

A. Education is a critical driver of economic development, as it provides the human capital

necessary for innovation, productivity, and growth.

B. Education has no impact on economic development.

C. The impact of education on economic development is neutral.

D. Education is a barrier to economic development, as it diverts resources from more productive

activities.

E. None of the above.

7. What “poverty trap or vicious circle of poverty” did Nurkse famously describe in 1953?
A. People in poor countries are too poor to save, which means that they cannot invest in capital
to increase their productivity, which means they remain poor
B. Women in poor countries are uneducated, which tends to result in high fertility rates, which
means households do not have enough money to send girls to school
C. social structures in developing countries tend to limit the options available to poor
D. the poor tend to live far away from physical infrastructure, which limits their possibilities for
accessing markets
8. Which of the following accurately describe a criticism of the Harrod-Domar Model?
A. People in poor countries may be stuck in a poverty trap and unable to invest
B. Economic growth is necessarily results in economic development
C. state owned enterprises tend to be less efficient than their privately owned competitors

2
D. All
9. The Harrod-Domar growth model is based on the relationship of what two economic
elements?
A. Saving an investment
B. raw materials and technology
C. education enrollment and number of teachers
D. population and economic development
10. In the lewis model, what will causes an expansion in modern sector employment/
A. A reinvestment of profits by capitalists that allows production expand
B. interventions by state to expand employment
C. an increase in technology
C. an increase in surplus labor
11. Which one of the following indicators a classification which doesn‟t determine a country‟s
level of development?
A. population
b. GDP per capita
C. level of income
D. level of natural and human resources
12. The Gini Coefficient is calculated by finding which of the following
A. The area between a Lorenz curve and the line of absolute equality
B. The percentage of the population living on less than $1 a day
C. the difference between the richest and poorest of the population
D. the proportion of the population with more than a primary education
13. When the population growth rate of an economy becomes greater than the achievable
economic growth rate, it is known as:
A. Population trap
B. population explosion
C. population crisis
D. none of the above
14. Economic development refers to
A. sustainable increase in gross national product

3
B. economic growth plus changes in output distribution and economic structure
C. improving in the well-being of the urban population
D. Economic growth
15. Dual economies are countries
A. with a modern manufacturing sectors as well as traditional agricultural sector
B. with double capital and labor
C. with foreign-owned and domestically-owned capital
D. that specialize in labor-intensive products more than capital intensive products
16. Which one of the following is a goal of economic development?
A. economic growth
B. reduction of poverty
C. improving of human development (education, health, etc)
D. all
17. Which one of the following describe why income inequality is bad for economic
development
A. income inequality may threaten political stability, because people are dissatisfied with their
economic situation and place blame on political authorities
B. income inequality reduce the pool of poor people with resources, such as education, to
improve productivity
C. income inequality may increase distrust and deter commitment amongst people in
marketplace, making contracts enforcement difficult
D. all of the answers
18. A multi-dimensional measure of poverty include includes which of the following elements?
A. health level
B. education level
C. vulnerability to natural events
D. all
19. Which of the following are components of economic growth?
A. growth in labor force
B. technological progress
C. Investment

4
D. all of the above
20. The linear stage theory of economic growth fails to recognize that increased investment is
A. both a necessary and sufficient condition
B. a sufficient but not a necessary condition
C. neither a necessary nor a sufficient condition
D. a necessary but not a sufficient condition
17. According to the dependence theory, the developing world is known as the
a. Backward area
B. First world
C. center
D. periphery
21. The underlying assumption of the Harrod-Domar growth model is that
A. the incremental capital-output ratio is given by capital over output
B. Developing countries save too much and invest too little
C. growth can be sustained only if agricultural productivity rises
D. Growth is the mainly determined by capital accumulation
22. Neoclassical counter revolution school support
A. trade restriction
B. state owned enterprises
C. limitation on foreign regulation
D. eliminating government regulation
23. The false paradigm model attributes lack of development to
A. inadequate attention to prices incentives
B. a lack of government regulation
C. low level of saving and investment
D. inappropriate advice from rich country economist
24. Which of the following is an assumption of the lewis two-sector model?
A. Rising marginal product of labor in the rural sector
B. high unemployment in the urban sector
C. rising real urban wages
D. surplus labor in the rural sector

5
25. The market-friendly approach to development emphasizes
A. self-interested behavior of public officials in LDCs
B. the dependences of LDCs on former colonial powers
C. the inherent efficiency of markets and developing countries
D. that markets in LDC fail to sometimes and selective intervention can promote economic
development
26. The vicious circle theory states that
A. growing government assistances create addiction to welfare program
B. low income levels create pressure for money creation
C. low income levels creates pressure for cheap imports
D. low per capita income creates low savings that keep incomes low
27. Rostow‟s economic stages are
A. the preconditions for takeoff, the takeoff, the drive to maturity, and the age of creative
destruction
B. the learning curve, the age of high mass consumption, post-takeoff, and the drive to maturity
C. the preconditions for consumption, the replication, the drive to maturity, and the age of high
mass consumption
D. the traditional society, the preconditions for takeoff, the takeoff, the drive to maturity, and the
age of high mass consumption
28. A value of 1 in Gini index represents
A. low inequality
B. 1% inequality
C. 10/10, 000% inequality
D. maximum inequality
29. The concept of economic growth is:
A. Identical with the concept of economic development
B. Unrelated to the concept of economic development
C. Wider as compared to that of economic development
D. Narrower than the concept of economic development
30. The „big-push‟ strategy of development was first advocated by:
A. A.O.Hirshman

6
B. Simon Kuznets
C. W.A, Lewis
D. Paul N-Rosenstein-Rodan
31. Which growth model inspired the use of capital-output ratio for development planning?
A. Solow‟s model
B. the Harrod-Domar model
C. Kaldor‟s model
D. Feldman‟s model
32. Balanced growth implies:
A. Simultaneous development of a variety of activities, which support one another
B. Different sectors growing at their natural rates of growth
C. Equal allocation of resources to different sectors
D. Uniform rate of growth of output over time
33. A graphical technique that can be used to show the degree of inequality that exists between
two variables is the:
A. median-line bar graph
B. Lorenz curve
C. Kuznets curve
D. Semantic differential profile
34. Scarcity of capital, technological backwardness and unemployment are generally found in
A. Developed countries
B. Underdeveloped countries
C. Both
D. None of the above
35. Capital formation in underdeveloped countries is a major bottleneck. The reason can be
A. Small size of market with no incentive for investment
B. Low level of income
C. Demonstration effect
D. All the above
36. Which of the following about strategy of unbalanced growth is right?
A. Simultaneous investment in all sectors

7
B. Deliberate imbalance in favor of some sectors
C. Both
D. None
37. Which one of the following is not Kuznets‟s Characteristics of Modern Economic Growth?
A. Aggregate growth
B. low rates of increase in output per unit of all inputs
C. International spread
D. Structural transformation
38. The component/s of HDI is/are
A. Infant mortality rate
B. Life expectancy index
C. Population growth rate
D. All the above
39. „Take off stage‟ in an economy means
A. Economy is stagnant
B. Steady growth begins
C. Economy is about to collapse
D. All controls are removed
40. Which is the best measure of economic growth of a country?
A. GNP
B. GDP
C. Net revenue
D. None of these
41. The traditional approach to development assumes that economic development is determined
by
A. Type of Government
B. Institutions
C. economic factors
D. Social Structure of Population
42. The Physical Quality of Life Index (PQLI) combines three indicators. They are
A. political, economic and development

8
B. crime rate, clean environment and quality of housing
C. literacy rate, life expectancy, and infant mortality rate
D. health, education and environment
43. What they are core values of Development
A. The Ability to Meet Basic Needs
B. Self-Esteem
C. A and B
D. none of above
44. The _______________ is the ratio of the non-working population (under 15 years old and
over 64 years old) to the working-age population.
A. labor force participation rate.
B. per capita population ratio
C. dependency ratio
D. population transition
45. What does it mean in the Romer model when it says that there are constant returns to labor?
A. double inputs double output
B. workers can never become more productive
C. production of output will increase by the same marginal amount for every additional worker
D. production of output is the same as in other countries
46. _________ is refers to the skills and expertise embodied in the labor force through education
and training
A physical capital
B. Capital Formation
C. human capital
D. growth and economic development
47.____________ is lack of basic necessities that all human beings must have: food and water,
shelter, education, medical care, security, etc.
A. income inequality
B. Lorenz curve
C. poverty
D. Gini Coefficient

9
48. The Human Development Index (HDI) summarizes a great deal of social performance in a
single composite index, combining
A. minimum schooling, adult literacy and tertiary educational attainment
B. longevity, education and living standard
C. disparity reduction rate, human resource development rate and the composite index
D. human resource training, development and R&D
49. Development economics is the study of
A. alleviation of absolute poverty
B. transformation of institutions
C. allocation of resources in developing countries
D. all of above
50. The Harrod-Domar growth model suggests that growth is
A. directly related to savings and inversely related to the capital/output ratio.
B. directly related to the capital/output ratio and inversely related to savings.
C. indirectly related to savings and the capital/output ratio.
D. directly related to savings and the capital/output ratio.

10
 RIFT VALLEY UNIVERSITY
HAWASSA CAMPUS
DEPARTMENT OF ECONOMICS
Econometrics I Model Examination
Instruction: Choose the correct answer from the given alternatives!
1. All of the following methods are used in testing the individual significance of the parameter
estimates of the OLS regression except
A. Standard error test B. F-test C. Confidence interval test D. Students t-test
Answer: B
2. The fitted regression equation is given by 𝑌 = −12 + 0.5𝑋. What is the value of the residual
at the point X = 50 and Y = 70?
A. 13 B. 42 C. 57 D.29
Answer: C
3. One of the following is not a component of the BLUE property of the OLS estimators.
A. Linearity B. Unbiasedness C. Efficiency D. Maximum Variance
Answer: D
4. If the total sum of squares in a regression equation is 81, and the residual sum of squares is
25, what is the explained sum of squares?
A. 64 B. 56 C. 32 D.18
Answer: B
5. One of the following is a problem in a regression which arises when some or all explanatory
variables are perfectly linearly correlated with each other.
A. Heteroskedasticity B. Autocorrelation C. Multicollinearity D. Normality
Answer: C
6. Which of the following is a statistic that can be used to test hypothesis about a single
population parameter?
A. F statistic B. t statistic C. χ2 statistic D. Durbin Watson statistic
Answer: B

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7. In a regression model with 10 observations and 2 regressors the degree of freedom is
A. 2 B. 8 C.7 D. 9
Answer: C
8. Which one of the following tests is appropriate to detect the presence of heteroskedasticity
problem in a specified regression model?
A. Darbin Watson d-statistic test C. Variance inflation factor
B. Breusch-Pagan-Godfrey Test D. Ramsey regression equation specification test
Answer: B
9. If the expected value of an estimator equals the true population parameter, the estimator is
said to be
A. Efficient B. Unbiased C. Biased D. Inefficient
Answer: B
10. If the residual sum of squares in a regression analysis is 35 and the explained sum of squares
is 90, what is the coefficient of determination?
A. 0.72 B. 0.55 C. 0.27 D. 3.75
Answer: A
11. Heteroskedasticity problem will arise in a regression model if
A. different error terms have identical variances
B. different error terms do not have identical variances
C. the variance of dependent variable is not constant
D. the variance of the error term is constant regardless of sample size
Answer: B
12. The sum of the residuals is always
A. ∞ B. 1 C. -1 D. 0
Answer: D
13. Given that Y = f(X), a relationship between X and Y is said to be stochastic if
A. Y assumes some probability for each value of X
B. for each value of the X there is only one corresponding value of Y
C. Y is not influenced by X at all
D. More than one corresponding values of Y exist for each value of X
Answer: A

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14. Autocorrelation is said to be present in the specified regression model if the Darbin-Watson
d-statistic is nearly close to
A. 0 B. -2 C. 4 D. 2
Answer: D
15. In a regression analysis the expression BLUE stands for?
A. Best Linear Unbiased Estimator. C. Bohr‟s Linear Unbiased Estimator.
B. Biased Linear Unit Estimator. D. Best Linear Unit Estimator.
Answer: A
16. The classical linear regression assumption that the correlation between any two error terms is
zero denotes
A. Serial Autocorrelation C. No multicollinearity
B. No autocorrelation D. Perfect multicollinearity
Answer: B
17. Which of the following is correct statement?
A. The larger the error variance, the greater the variance of slope parameters.
B. The larger the error variance, the smaller the variance of slope parameters.
C. The smaller the error variance, the greater the variance of slope parameters.
D. The change in the error variance will have no significant influence the variance of slope
parameters.
Answer: A
18. The variance inflation factor of 1 is an indication of.
A. Perfect multicollinearity C. Moderate multicollinearity
B. High multicollinearity D. No multicollinearity
Answer: D
19. Given the linear regression function, 𝑌 = 𝛼 + 𝛽𝑋 + 𝑈, what is the assumption that the
variance of the error or disturbance term is constant regardless of the value of X?
A. Heteroskedasticity B. Autocorrelation C. Homoskedasticity D. No Autocorrelation
Answer: C
20. In a regression model with no explanatory variables the R2 is equal to
A. 1 B. 0 C. 0.5 D. -1
Answer: B

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21. Suppose the researcher surveyed the same sample of households quarterly on repeated
observations in the year 2022. The data collected by the researcher is categorized as a
A. Cross sectional B. Time series C. Panel D. Pooled cross section
Answer: C
22. The normality of the error terms can be represented by
A. Error terms with zero mean and constant variance
B. Error terms with zero mean and variable variance
C. Error mean of one and infinitely large variance
D. Error mean of one and constant variance
Answer: A
23. Model specification errors arise when
A. Relevant variables are omitted from the specified model.
B. Irrelevant variables are neglected from the specified model
C. All relevant variables are included in the specified model
D. The specified model is non linear
Answer: A
24. In the linear regression model, 𝑌 = 𝛼 + 𝛽𝑋 + 𝑈, the variable „X‟ is said to be a(an)
A. Regressand/ Predictand C. Explanatory variable
B. Endogenous variable D. Dependent variable
Answer: C
25. Given the linear regression, 𝑌 = 𝛼 + 𝛽𝑋 + 𝑈, an R2 of 0.90 indicates that
A. 90% of the variations in Y is explained by the changes in X
B. 10% of the variations in Y is explained by the changes in X
C. 90% of the variations in Y is attributed to factors included in the disturbance term
D. 90% of the variations are left unexplained by the changes in X
Answer: A
26. What would be then consequences for the OLS estimator if heteroskcedasticity is present in a
regression model but ignored?
A. The estimators will be biased C. The estimators will be non-linear
B. The estimators will have minimum variances D. The estimators will be inefficient
Answer: D

Page 4 of 8
27. In testing the statistical significance of the OLS estimators, what is our decision if the
calculated value of t is greater than it‟s critical or table value?
A. We accept the null and reject the alternative hypothesis
B. We accept the alternative and reject the null hypothesis
C. We reject both the null and alternative hypothesis
D. We accept both the null and alternative hypothesis
Answer: B
28. The slope coefficient will be statistically significant at 5% level if
A. P-value is less 0.05 C. P-value is 1
B. P-value is greater than 0.05 D. P-value is indeterminate
Answer: A
29. Suppose 𝑌 = 128.5 + 2.88𝑋 is an estimated regression line from a sample of 20
observations and the standard error of the slope parameter is 0.85. If the critical value of t at
0.025 level of significance and 18 degree of freedom is 2.10, the 95% confidence interval for
the slope of parameter is constructed as
A. (1.09, 4.67) C. (-1.22, 2.54)
B. (2.01, 3.47) D. (-12.21,10.32)
Answer: A
30. As the sample size increases, the variance of the slope coefficient
A. Increases B. Decreases C. stays constant D. is indeterminate
Answer: B
31. E (Ui,Uj) = 0, when i≠j is termed as,
A. Hetroscedasticity C. Multi-collinearity
B. No Auto-Correlation D. Homoscedasticity
Answer: B
32. In the two variable linear regression model the slope coefficient measures
A. The percentage change in Y which the model predicts for a unit change in X
B. The percentage change in X which the model predicts for a unit change in Y
C. The percentage change in Y which is explained by changes in X
D. The percentage change in Y which is unexplained by changes in X
Answer: A

Page 5 of 8
33. Given the consumption function, 𝒄𝒐𝒏𝒔𝒖𝒎𝒑𝒕𝒊𝒐𝒏 =  + 𝒊𝒏𝒄𝒐𝒎𝒆 + 𝒖𝒊 , how to interpret
the slope parameter (β) if the its estimated value is 0.72?
A. If disposable income increases by $1, consumption expenditure increases by 72 cents.
B. If consumption expenditure increases by $1, disposable income increases by 72 cents.
C. Other things being constant, a $1 increase in a disposable income raises the consumption
expenditure by 72 cents.
D. Other things being constant, a $1 increase in the consumption expenditure raises the
disposable income by 72 cents.
Answer: C
34. The data collected from individuals, businesses or groups at a given point in time denotes
A. Time series data C. Cross sectional data
B. Panel data D. Pooled cross sectional data
Answer: C
35. Choose the correct one from the following.
A. 0 ≤ R2 ≤ 1 B. 0 < R2 < 1 C. 0 ≥ R2 ≥1 D. 0 > R2 > 1
Answer: A
36. Why do we include the error term in the econometrics model?
A. To show the percentage of variation in the dependent variable that is explained by the
included regressor(s)
B. To determine the overall level significance of the model
C. To justify that the specified model is non-stochastic
D. To capture the effect of unobserved factors on the dependent variable
Answer: D
37. The formula of coefficient of determination is
A. 1 + RSS/TSS B. 1-RSS/ESS C. 1-RSS/TSS D. 1 +ESS/TSS
Answer: C
38. “In the traditional learning experiment, the effect of practice on performance is
investigated”. Performance is this context is a(an)
A. Independent variable C. Dependent variable
B. Extraneous variable D. Control variable
Answer: C

Page 6 of 8
39. If we do not reject the null hypothesis, we conclude that:
A. there is enough statistical evidence to infer that the alternative hypothesis is true
B. there is not enough statistical evidence to infer that the alternative hypothesis is true
C. there is enough statistical evidence to infer that the null hypothesis is true
D. the test is statistically insignificant at whatever level of significance
Answer: B
40. The purpose of hypothesis testing is to:
A. test how far the mean of a sample is from zero
B. determine whether a statistical result is significant
C. determine the appropriate value of the significance level
D. derive the standard error of the data
Answer: B
41. Suppose 𝑌 = −9.96 + 0.74𝑋1 + 0.50𝑋2 is an estimated regression line from a sample of 10
observations and the coefficient of variation (R2) is 0.81. The calculated F value for this
estimated model will be
A. 12.2 B. 13.5 C.15.6 D.14.9
Answer: D
42. Consider the estimated equation: 𝑄 = 698.9 − 2.28P
(10.4) (0.52)
The t-statistic for the slope is approximately
A. 1.76 B. 67.20 C. 0.52 D. 4.38
Answer: D
43. The t-statistics is calculated by dividing of:
A. The least squares estimator by its standard error
B. The slope coefficient by one
C. The estimator minus its hypothesized value of the standard error
D. The slope coefficients by the coefficient of determination
Answer: A
44. White‟s test is used for the detection of
A. Heteroscedasticity B. Multicollinearity C. Autocorrelation D. Normality
Answer: A

Page 7 of 8
45. Which one is not the assumption of Guassi-Markovs OLS estimation?
A. Zero covariance between error terms C. Perfect multicollinearity
B. Equal variance of disturbance terms D. Zero mean value of disturbance terms
Answer: C
46. The most usually used method of estimation in econometrics is:
A. General weighted least square method C. Momentum method of estimation
B. Maximum likelihood method D. Ordinary least square method of estimation
Answer: D
47. In confidence of interval estimation, α = 5%, this means that the interval includes the true β
with probability of:
A. 5% B. 50% C. 0.5% D. 95%
Answer: D
48. The OLS estimator is derived by:
A. Minimizing the sum of absolute residuals
B. Dividing the sample size by the number of parameters in the model
C. Minimizing the sum of squared residuals
D. Minimizing the sum of residuals
Answer: C
49. Durbin Watson test is associated with:
A. Multicollinearity C. Autocorrelation
B. Heteroscedasticity D. Model specification error
Answer: C
50. To obtain the slope estimator using the least squares principle, you divide the
A. Sample variance of X by the sample variance of Y.
B. Sample covariance of X and Y by the sample variance of Y.
C. Sample covariance of X and Y by the sample variance of X.
D. Sample variance of X by the sample covariance of X and Y.
Answer: C

Set by: Aklilu Abebe (MSc.)

June, 2023

Page 8 of 8
1. The measurement of economic data:
A. mathematical
B. econometrics
C. business
D. statistics
Answer: B
2. An identity between two alternative:
A. behavioral
B. definitional
C. conditional
D. none
Answer: B
3. The relationship between the price of the commodity and quantity of the
commodity demanded :
A. supply
B. demand
C. elasticity
D. none
Answer: B
4. The relation of Price and quantity demanded:
A. negative
B. positive
C. no relation
D. none
Answer: B
5. The relationship between the price of the commodity and quantity of the
commodity supplied:
A. demand
B. equilibrium
C. supply
D. none
Answer: C
6. The wants satisfying power of a commodity:
A. consumption
B. saving
C. utility
D. interest
Answer: C
7. Consumption function is given C = 35 + .4 Yd , find MPC:
A. .4
 B. .6
C. .8
D. .7
Answer: A
8. The relationship between income and consumption:
A. consumption
B. saving
C. investment
D. none
Answer: A
9. The transformation of physical inputs in to physical outputs:
A. production
B. consumption
C. distribution
D. investment
Answer: A
10. The difference between total revenue and the total Cost:
A. cost
B. income
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C. profit
D. revenue
Answer: C
11. MPS + MPC =?
A. 2
B. 0
C. 1
D. 3
Answer: C
12. The difference between the present level of income and the past level of income:
A. saving
B. consumption
C. investment
D. none
Answer: C
13. The first derivative of the consumption function is:
A. marginal revenue
B. marginal cost
C. marginal propensity to consume
 D. none
Answer: C
14. Revenue function TR = 22x²+14, find Marginal revenue?
A. 44x
B. 40x
C. 22x
D. 54x
Answer: A
15. The addition to total cost:
A. mc
B. ac
C. tc
D. none
Answer: A
16. The proportionate change in quantity demanded and the proportionate change
in price is:
A. price elasticity
B. income elasticity
C. cross elasticity
D. none
Answer: A
17. MRSxy is equal to:
A. mux/muy
B. mpx/mpy
C. mrts
D. none
Answer: A
18. Marginal rate of technical substitution is equal to:
A. mux/muy
B. mpl/mpk
C. mrsxy/mrs
D. mrx/mry
Answer: B
19. The ratio of the proportionate change in the quantity purchased of a good to
the proportionate change in income:
A. price elasticity
B. income elasticity
C. cross elasticity
D. none
Answer: B
20. An increase in income lead to the increase in quantity demanded of the good:
A. negative good
B. positive good
C. superior good
D. normal good
Answer: C
21. The relationship between quantity demanded of a good and level of consumer’s
income:
A. engel function
B. consumption function
C. saving function
D. none
Answer: A
22. The proportionate change in quantity demanded by a good due to
proportionate change in the price of the other good:
A. price elasticity
B. income elasticity
C. cross elasticity
D. demand elasticity
Answer: C
23. Given the utility function U = 5x²+12x, find Marginal utility:
A. 5+12
B. 10x+12
C. 12x 10
D. 10x +12x
Answer: B
24. The first order derivative of Total Utility:
A. mu
B. tu
C. au
D. none
Answer: A
25. The transformation of physical inputs in to outputs:
A. production function
B. consumption function
C. saving function
D. none
Answer: A
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26. The intercept term,?1, is absent in.................. model.
A. regression through the origin
B. lin log model
C. log lin model
D. ols model
Answer: A
27. The lin log model and log lin model are ............. in parameters.
A. non linear
B. linear
C. functional
D. dependent
Answer: A
28. r2 in intercept less model is.... .............. negative.
A. always
B. sometimes
C. never
D. cannot say
Answer: B
29. The slope coefficient ,?2, of ............ model measures elasticity of Y with respect
to X.
A. regression through the origin
B. log log model
C. log lin model
D. clrm
Answer: B
30. . ....................... is a growth model.
A. alinear trend model
B. lin log model
C. log lin model
D. none of the above
Answer: A
31. In regression through the origin model, ......................... is absent.
A. the intercept term ,?1
B. the slope coefficient ,?2
C. error term
D. explanatory variables
Answer: A
32. Econometrics is concerned with
A. empirical support to economic theory
B. quantitative analysis of economic data
 C. use of tools of mathematics and statistical inference
D. all of the above
Answer: D
33. Which of the following is the combination of economic theory, mathematical
economics and economic statistics
A. econometrics
B. statistics
C. mathematics
D. quantitative economics
Answer: A
34. The first step in traditional econometric methodology is
A. statement of theory
B. forecasting
C. obtaining data
D. estimation of the model
Answer: A
35. Which of the following discipline express the economic theory in mathematical
form
A. econometrics
B. statistics
C. mathematics
D. mathematical economics
Answer: D
36. Keynes postulated ----- relationship between income and consumption
A. negative
B. positive
C. non linear
D. infinite
Answer: B
37. In the function, Q= ?+?P, the slope coefficient is
A. ?
B. ?
C. p
D. q
Answer: B
38. In the Keynesian linear consumption function Y=?1+?2X, Y represents
A. income
B. consumption expenditure
C. output
 D. price
Answer: B
39. In the Keynesian linear consumption function Y=?1+?2X, ?1 is
A. slope coefficient
B. intercept coefficient
C. output coefficient
D. none of the above
Answer: B
40. In the Keynesian linear consumption function Y=?1+?2X, the parameters of the
model are
A. ?1and ?2
B. . ?1and x
C. x and y d. y and D. ?2
Answer: A
41. In the Keynesian linear consumption function Y=?1+?2X, the marginal
propensity to consume is
A. ?1
B. x
C. y
D. ?2
Answer: D
42. if the model has only one equation, the model is called
A. single equation model
B. multiple equation model
C. variable equation model
D. none of the above
Answer: A
43. if the model has more than one equation, the model is called
A. single equation model
B. multiple equation model
C. variable equation model
D. none of the above
Answer: B
44. In the Keynesian linear consumption function Y=?1+?2X, the dependent
variable is
A. ?1
B. x
C. y
D. ?2
Answer: C
45. In the Keynesian linear consumption function Y=?1+?2X, the explanatory
variable is
A. ?1
B. x
C. y
D. ?2
Answer: B
46. the variable appearing on the left side of the equality sign is called
A. dependent variable
B. independent variable
C. explanatory variable
D. none of the above
Answer: A
47. In conventional model r2 is .............. negative.
A. always
B. sometimes
C. never
D. cannot say
Answer: C
48. the variable appearing on the right side of the equality sign is called
A. independent variable
B. explanatory variable
C. all of the above
D. none of the above
Answer: C
49. independent variables are also known as
A. explanatory variables
B. dependent variable
C. implicit variable
D. static variable
Answer: A
50. which is the explanatory variable in the Keynesian consumption function
A. income
B. consumption
C. price
D. output
Answer: A
51. If marginal revenue is Rs.25/- and elasticity of demand w.r.t price is 2, then the
average revenue is
A. 50
 B. 25
C. 75
D. 100
Answer: A
52. Cost is a function of
A. price
B. revenue
C. quantity
D. none of these
Answer: C
53. An example of fixed inputs of production is
A. land
B. organisation
C. both a and b
D. none of these
Answer: C

54. Total variable cost plus total fixed cost gives

A. total cost
B. average cost
C. marginal cost
D. none of these
Answer: A
55. Marginal cost of a function c = f(g) is
A. dc/dq
B. f\(q)
C. both a and b
D. none of these
Answer: C
56. The ratio of total cost to the quantity produced is called
A. average cost
B. marginal cost
C. total variable cost
D. none
Answer: A
57. Sum of explicit cost and implicit cost gives:
A. total cost
B. average cost
C. marginal cost
 D. none of these
Answer: A
58. For a unitary elastic supply curve, p s is
A. less than 1
B. more than 1
C. equal to 1
D. zero
Answer: C
59. Cross price elasticity may not always be
A. symmetrical
B. asymmetrical
C. both a and b
D. none
Answer: A
60. Luxury goods are:
A. price inelastic
B. price elastic
C. both a and b
D. none
Answer: B
61. If close substitutes are available, then the elasticity of demand will be
A. low
B. moderate
C. high
D. optimum
Answer: C
62. The relationship between supply and price is
A. negative
B. perfect
C. positive
D. none
Answer: C
63. The relationship between demand and price is
A. positive
B. negative
C. perfect
D. none
Answer: B
64. A given percentage change in price results in an equal percentage change in
sales, indicates:
 A. unitary price elasticity
B. inelastic price elasticity
C. elastic price elasticity
D. none
Answer: A
65. What is the order of differential equation = 10x + 5
A. first
B. second
C. third
D. fourth
Answer: A
66. A line for linear equation should begin from
A. origin
B. x axis
C. y axis
D. any of the above
Answer: D
67. Functional relationship between input and output is called
A. isoquants
B. isocost
C. input function
D. production function
Answer: D
68. Law of variable proportion explainsfor
A. short run
B. long run
C. medium run
D. none
Answer: A
69. In CES production function, the elasticity of substitution is
A. unity
B. zero
C. negative
D. constant
Answer: D
70. The highest power to which the derivative of highest order is raised in
differential equation is called.
A. trace
B. order
C. degree
 D. transpose
Answer: C
71. MRTS is the slope of
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A. production function
B. priceline
C. isocostline
D. isoquant
Answer: D
72. Second stage in return to scale is called
A. increasing returns
B. diminishing returns
C. constant returns
D. negative returns
Answer: C
73. Slope of Total product Curve is called
A. mp
B. ap
C. tc
D. mc
Answer: A
74. For a function y=f(x), x1>x2 ?f(x)1> f(x2) says that the function is
A. increasing
B. decreasing
C. constant
D. none of these
Answer: A
75. The points at which a curve is neither increasing not decreasing is called
A. turning point
B. stationery points
C. both a and b
D. none of these
Answer: C
76. The objects constituting a set are called
A. estimates
B. elements
C. set objects
D. none of these
Answer: A
77. Who is regarded as the founder of theory of sets?
A. adam smith
B. karl frederich gauss
C. george cantor
D. euller
Answer: D
78. A collection of well-defined distinct objects thought of as a whole is called
A. union
B. derivative
C. set
D. integral
Answer: C
79. “No two elements of a set are identical”. This statement is
A. always true
B. sometimes true
C. not true
D. all of the above is possible
Answer: B
80. A set containing no element is called
A. null set
B. empty set
C. void set
D. all the above
Answer: D
81. A set containing only one element is termed as
A. unit set
B. singleton set
C. both (a) and (b)
D. none of these
Answer: C
82. A set of totality of elements from all possible sets is called
A. union set
B. intersection set
C. universal set
D. unit set
Answer: C
83. If two sets contain the same distinct elements, then they are called
A. equal sets
B. unequal sets
C. equivalent sets
 D. all the above
Answer: A
84. If two sets contain same number of distinct elements but not the same elements
are called
A. equal sets
B. unequal sets
C. equivalent sets
D. all the above
Answer: B
85. Sets and set operations can be represented by drawing diagrams termed as
A. pie diagrams
B. venn diagrams
C. histogram
D. ogives
Answer: B
86. If every element of a set B is also an element of A, then
A. a is a subset of b
B. b is a subset of a
C. a is not a subset of b
D. b is not a subset of a
Answer: B
87. In Venn diagram, the universal set is represented by
A. points within a rectangle
B. points within a circle
C. both (a) and (b)
D. none of these
Answer: A
88. “Null set is a proper subset of all the non-null sets”. This statement is
A. always true
B. sometimes true
C. never true
D. true subject to some conditions
Answer: A
89. The set which contains all the elements of the two given sets A and B, avoiding
duplication, is called
A. intersection of a and b
B. union of a and b
C. set of a and b
D. none of these
Answer: B
90. Union of A with A, that is, A U A =
A. complement of a
B. a itself
C. cannot be determined
D. none of these
Answer: B
91. Union of A and the universal set is
A. a
B. a’
C. universal set
D. none of these
Answer: C
92. Union of A and a null set is equal to
A. intersection of a and null set
B. null set
C. both (a) and (b)
D. a
Answer: D
93. Union of A with B is same as union of B with A, that is, A U B = B U A is
termed as
A. associative law of union
B. cumulative law of union
C. reflective law
D. all the above
Answer: B
94. The associative law of union is
A. a u (b u c) = (a u
B. u c = a u b u c (b) a u b = b u a
C. a u b = a u c
D. b u c = b u a
Answer: A
95. If B is a subset of A, then A U B =
A. b
B. a
C. intersection of a and b
D. none of these
Answer: A
96. If a set C contain all the elements which are present in both the sets A and B,
then set C is called
A. union of a and b
 B. intersection of a and b
C. complement of a
D. complement of b
Answer: B
97. If two sets do not have any common element, then they are called
A. complement sets
B. joint sets
C. disjoint sets
D. none of these
Answer: C
98. A set containing all the elements of the universal set except those of set A is
called
A. complement of set a
B. complement of universal set
C. union of a and universal set
D. universal set itself
Answer: A
99. The set of all elements belonging to A but not to B is
A. b – a
B. a – b
C. a’
D. b’
Answer: B
100. The set of all subsets of a set A is called
A. power set of a
B. complement of a
C. both (a) and (b)
D. none of these
Answer: A
101. Given the marginal revenue function MR = 520 - 3Q 0.5 , find the corresponding
demand function and total revenue function.
A. 40,000 units and 4, 800,000 Birr
B. 2,000 units and 4, 800,000 Birr
C. 40,000 units and 800,000 Birr
D. 10,000 units and 4, 800,000 Birr
Answer: A
102. Suppose the marginal propensity to consume (MPC) out of income for the economy
as a whole is given as 4 5 and it is known that when income is zero, consumption is
 equal to 12 billion Birr. Find the function which relates aggregate consumption to
national income. Find the aggregate saving function of the economy.
A. C= (4/5) Y +12 and S = (1/5) Y -12
B. C= (2/5) Y +10 and S = (1/5) Y -12
C. C= (4/5) Y +12 and S = (4/5) Y -12
D. C= (4) Y +12 and S = (5) Y -12
Answer: A
103. A firm faces anon - linear demand function P = ( 650 - 0.25q) 1.5 .Determine the
marginal revenue (MR) function of this firm.
A. MR = (650 - 0.25q) 0.5
B. MR = (65 - 0.25q) 0.5 (50 - 0.625q)
C. MR = (650 - q) 0.5 (650 - 0.625q)
D. MR = (50 - 0.25q) 0.5 (650 - 0.625q)
Answer: A

The market demand and market supply functions under perfect competition are given as
P= 16 - Q 2 and P = 2 Q 2 + 4 respectively. Find the producer's surplus.

32 units
A. 3
B. 33units
C. 24units
D. 16units
Answer: A
104. A firm is a monopoly seller of good q and faces the demand schedule P = 200 - 2q,
where p is price in birr and the short run production function is given as q = 4L0.5
Determine the marginal revenue productivity of labor (MRP L ) function.
A. MRPL = 400 – 32L 0.5

L 0.5

B. MRPL = 400 – 32L 0.5

C. MRPL = 400 – L 0.5

L 0.5

D. MRPL = 40 – L 0.5

L 0.5

Answer: A
105. Suppose a company whose annual sales are currently 500,000 Birr has been
experiencing sales increase by 20% per year. Assuming this rate of growth continues,
what will be the total sales of the company in five years time?
A. 4,295, 694 Birr
B. 4,295, 694 Birr
C. 4,295, 694 Birr
D. 4,295, 694 Birr
Answer: A
106. A firm faces the production function Q= 12K 0.4 L 0.4 and assume it can purchase K
and L at pries per unit of 40 birr and 5 Birr respectively and it has a budget of 800
Birr. Determine the amount of K and L which maximizes output.
A. K=10 and L= 80
B. K=10 and L= 40
C. K=10 and L= 20
D. K=5 and L= 10
Answer: A
107. Suppose the utility function of the consumer is given by U  4 xy  y 2 and the budget
constraint is 2x+y = 6. Determine the amount of x and y which will optimize total
utility of the consumer.
A. 2 units of good x and 2 units of good y.
B. 4 units of good x and 2 units of good y.
C. 3 units of good x and 3 units of good y.
D. 3 units of good x and 2 units of good y.
Answer: A
108. Suppose a firm produces an output Q using labor L and capital K with production
function Q  10K 0.5 L0.5 . If the output is restricted to 200 units, price of labor is 10 birr
per unit, the price of labor is 10 birr per unit and Price of capital is 40Birr per unit,
and then determines the amount of L and K that should be employed at minimum
cost. Find the minimum cost.
A. K = 10 and L = 4(10) = 40,  = 4, Min. C = 800 birr
B. K = 10 and L = 4(10) = 40,  = 4, Min. C = 800 birr
C. K = 10 and L = 4(10) = 40,  = 4, Min. C = 800 birr
D. K = 10 and L = 4(10) = 40,  = 4, Min. C = 800 birr
Answer: A
109. Given the revenue and cost conditions of a firm as R  32x  x 2 and C  x 2  8 x  4 ,
where x output is. Suppose the minimum profit is  0  18 .Determine the amount of
the output which maximizes revenue with the given minimum profit. In this case, the
revenue function is concave and the cost function is convex.
 The Problem is

Maximize R  32x  x 2

Subject to x 2  8 x  4  32x  x 2  18

And x  0

A. revenue is maximized when x  8

B. revenue is maximized when x  11
C. revenue is maximized when x  12
D. revenue is maximized when x  10
Answer: A
110. Given the demand function Q d = 24 -2p

The supply function Q s = - 5 + 7 P

What happens to the equilibrium price P when  1 increases from 24 to 25 other things
being equal?

29 30
A. The equilibrium price increases from 9 to 9
29 30
B. The equilibrium price increases from 9 to 9
29 30
C. The equilibrium price increases from 9 to 9
29 30
D. The equilibrium price increases from 9 to 9
Answer: A
111. The point price elasticity of demand (ep) for a certain commodity can be denoted
except?
A. ep = ( )

B. ep = ( )
C. ep =

D. ep =

Answer: B
112. Given the total utility function for a single commodity U =f(X) which one of the
following is/are necessarily true.
A. MUX=
B. MUX=0 when U is maximum
C. MUX>0 when U is raising
D. MUX<0 when U is diminishing
E. All
Answer: E

113. The short run relationship b/n APL and MPL can be
A. APL-MPL=L*
B. APL-MPL=
C. APL+MPL=
D. MP- APL=L*
Answer: A
114. The short run relationship b/n AC and MC can be
A. AC-MC=Q*
B. AC+MC=Q*
C. AC+MC=
D. AC+MC=Q*
Answer: A

115. The average cost minimizing level of output and the minimum Average cost for the
average cost function AC=25q-1+0.1q2
A. q=5 and AC= 7.5
B. q=3 and AC= 7.5
C. q=6 and AC= 5
D. q=2 and AC= 10
Answer: A
116. What is the profit maximizing level of output for a firm with the total cost function
C=4+97q-8.5q2+1/3q3 and the total revenue function R= 5q-0.5q2
A. q=13
B. q=3
C. q=10
D. q=13 and 3

Answer: A
117. Given the total revenue function TR =f(Q) for a perfectly competitive seller which
one of the following is/are necessarily true.
A. MR=0 when TR is maximum
B. MR=MC when π is maximum under F.O.C
C. <0 when π is maximum under S.O.C
D. All
Answer: E
118. A firm uses 200,000 units of component in a year ,with demand evenly spread over
the year.in addition to the purchase price ,each order placed for a batch of component
costs birr 80. Each nits held in stock over a year costs birr 8.what is the optimum
order size?
A. 2000 units
B. 1000 units
C. 20,000 units
D. 10,000 units

Answer: A

119. For a non-linear demand function P= 1,800-0.6q2 and the corresponding marginal
revenue function MR=1,800-1.8 q2, then what is TR when q=10 units?
A. €17,400
B. €17,000
C. €15,000
D. €14,400
Answer: A
120. Referring Q,123 what is the change in TR when q increases from 10 units to 20
units?
A. €13,800
B. €12,400
C. €8,000
D. €13,400
E. Answer: A
121. Referring Q,123 the consumer surplus when q=10 units
A. €400
B. €800
C. €600
D. €200

Answer: A

122. Given the following national income mode,

 Y = C+ I 0 + G 0

C = 50 + 0.6 (Y-T)

T = 30 + 0.3Y

I 0 = 20

G 0 = 15

Then  , C and T are respectively.

A. Y  115.5 , C  80.52 and T = 64.65

B. Y  115.5 , C  80.52 and T = 64.65
C. Y  115.5 , C  80.52 and T = 64.65
D. Y  115.5 , C  80.52 and T = 64.65
Answer: A
123. In a simple Keynesian macroeconomics model with no government sector and
foreign trade, it is assumed that
Y = C+ I

C = a + by where, a>0, 0<b<1 i.e b=MPC

Then, the rate of change of national income in response to an increase in exogenously

determined investment (the result of multiplier) can be.

A. =
B. =
C. =
D. =
Answer: A
124. Investment can best defined mathematically
A. ( )
B. ( )
C. ( )
D. ( )
Answer: A