1. John has a marginal propensity to consume of 0.75.

what does this mean

A. 25 cents of every additional dollar of his income is spent on consumption
B. 75 cents of every additional dollar of his income is spent on consumption
C. 75 cents of every additional dollar of his income is saved
D. He’s spending more than he’s making income
2. A nation’s gross domestic product (GDP)
A. Can be found by summing c+I+G+Xa
B. Is the dollar value of the total output produced by its citizens, regardless of where they are
living
C. Can be found by summing c+s+g+Xa
D. Is always some amount less than its NDP
3. Suppose the total market value of all final goods and services produced in a particular
country in 2024 is $500 billion and the total market value of final goods and services sold is
$450 billion. We can conclude that:

A. GDP in 2024 is 5450 billion.

B. GDP in 2024 is $500 billion.

C. NDP in 2024 is $450 billion.

D. Inventories in 2024 fell by 550 billion

4. Gross domestic product (GDP) measures and reports output:

A. As an index number.

B. In percentage terms. C. In dollar amounts.

D. In quantities of physical units

5. Final goods and services refer to:

A. Goods and services that is unsold and therefore added to inventories.

B. Goods and services whose value has been adjusted for changes in the price level

C. Goods and services purchased by ultimate users, rather than for resale or further processing.

D. The excess of U.S. exports over U.S. imports.

6 If intermediate goods and services were included in GDP:

A. The GDP would then have to be deflated for changes in the price level.

B. Nominal GDP would exceed real GDP.

C. The GDP would be overstated.

D. the GDP would be understated

7. Transfer payments are:

A. Excluded when calculating GDP because they only reflect inflation.

B. Excluded when calculating GDP because they do not reflect current production.

C. Included when calculating GDP because they are a category of investment spending

D. Included when calculating GDP because they increase the spending of recipients.

8. If depreciation exceeds gross investment:

A. The economy's stock of capital may be either growing or shrinking.

B. The economy's stock of capital is shrinking.

C. The economy's stock of capital is growing.

D. Net investment is zero.

Use the following to answer questions 9-12

Answer the next question(s) on the basis of the following data. All figures are in billions of
dollars. Gross investment $ 18. National income 100 .Net exports 2. Personal income 85. Saving
5. Personal consumption expenditures 70. Government purchases 20. Net domestic product 105

9. The gross domestic product for the above economy is:

A. $100. B) $95. C) $110. D) $107.

10. Refer to the above data. Consumption of fixed capital is:

A) $5. B) $10. C) $20. D) $30.

11. Refer to the above data. Disposable income is:

A) $83. B), $73. C) $75. D). $77.

12. Refer to the above data. From this information we can conclude that the sum of indirect
business taxes and net foreign factor income is.

A) 55 billion. B) Zero C) $1 billion. D). $15 billion.

13. The total income earned in. any year by national resource suppliers is measured by:

A) DL. B) NL C) PL D) GDP

14. Which one 14 of the following is not true about aggregate demand (AD)

A. AD can be representing by down ward sloping curve in Consumption spending vs. quantity of

output demanded.
B. AD is total amount goods demanded by different economic agents in the economy

C. AD can be representing by upward sloping curve in Consumption spending vs. quantity of

output demanded.

D. All of the above

E. None of the above

15. One of the following is component of aggregate demand except

A. Private consumption

B. Foreign spending

C. Business firm spending

D. All of the above

E. None of the above

16. One of the following is not correct about money market

A. The money market is in equilibrium when the real demand for money equals the real money
supply, leading to an equilibrium interest rate.

B. The interest rate adjusts to equilibrate the money market.

C. The money market is in disequilibrium when the real demand for money equals the real
money supply, leading to an equilibrium interest rate

D. All of the above

E. None

17. The variable that links the market for goods and services and the market for real money
balances in the IS-LM model is the:

A. Consumption function C. Price level

B. Interest rate D. Nominal money supply

18. One of the following is function of money

A. Unit of account B. Medlum of exchange

C. Store of value D. All of the above

E. None of the above

19. one of the following is correct regarding planned investment

A. Planned investment is inversely related to the interest rate

B. When the cost of borrowing is high, planned investment spending will increase.

C. When the opportunity cost of own funds is lower, planned investment spending will be low

D. Planned investment is positively related to the interest rate

E. None of the above

20. One of the following is correct regarding IS curve

A. IS a curve plot the relationship between aggregate output and the real interest rate when the

money market is in equilibrium.

B. Each point on the IS curve represents equilibrium in the money market,

C. the IS curve illustrates how the equilibrium level of income depends on real interest rate

D. All of the above. E.) None of the above

21. expansionary fiscal policy-causes

A. the planned expenditure to shift downward,

B. The IS curve to shift to the right by the change in income, at the given interest rate.

C. The IS curve to shift to the left by the change in income, at the given interest rate.

D. A and C

E) B and C

22. Of the following, one is NOT part of GDP of Ethiopia?

A) Households purchase of durable goods

B) Real estate investment by tsehay real estate

C) Export earnings from sale of coffee

D) Government transfer payments to households

E) None of the above

23. The total income of everyone in the economy is exactly equal to the total

A) Government expenditures

B) Expenditure on the economy's final output of goods and services

C) Consumption expenditures of everyone in the economy

D) Expenditures of all businesses in the economy

E) All

24. Suppose that the national bank of Ethiopia set new police that initiate reduction of nominal
money supply, which one the following is true regarding this monetary policy

A. This shifts the supply of real money balance to the right.

B. the LM carve shift upward to the left and interest rate rose up, leaving output unchanged

C. the LM carve shift downward to the left and interest rate rose up, leaving output unchanged

D. A and B

E. none of the above

25. One is not true regarding the of theory of Liquidity Preference

A. The theory of liquidity preference assumes there is a fixed supply of real money balances

B. According to theory of liquidity preference supply of real money balances does not depend on
interest rate

C. According to theory of liquidity preference demand for real money balances does not depend
on interest rate

D. All of the above

E. None of the above

26. Which one of the following statement is correct

A. increase in government expenditure result in increase in aggregate demand causing upward

shift in aggregate demand curve

B. decrease in government expenditure result in increase in aggregate demand causing upward

shift in aggregate demand curve

C. decrease in tax result in decrease in aggregate demand causing downward shift in aggregate
demand curve

D. All of the above,

E) none of the above

27. Which one of the following is true about monetary and fiscal policies in ISLM model

A. Increase in government expenditure in ISLM model results leftward shift in IS curve

B. Increase in government expenditure in ISLM model results up ward shift in LM curve

C. Increase money supply in ISLM model results right ward shift in LM curve

D. Increase money supply in ISLM model results left ward shift in IS curve

E. ALL of the above

28. the part of income that a household does not consume in a given period is

A. investment B. saving C. disposable income D. interest rate

E. none of the above

29. Which one of the following is correct statement about concept of business cycle

A. Output gap measures the deviation of output from its potential level

B. Output gap is big during recession and declines when the economy is in expansion

C. A trend path of RGDP is the path GDP would take if factors of production were fully employed

D. All of the above.

E). A and C

30. If you have estimated result of aggregate consumption function as C = 200 + 55Y, which one
of the following correct interpretation of the function. Where C, consumption (million birr) and
Y, income (million birr)

A. At a national income of zero, consumption is 200 million birr.

B. At national income of zero consumption is 200.55million birr

C. For every 100 million increase in income (AF), consumption rises by 255 million (AC).

D. A and C

E.) None of the above