HARAMAYA UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF ECONOMIC
MOCK EXAMMINATION

Choose the best answer from the suggested options

International Economics
1. What is the main reason why countries engage in international trade?
A. To fulfill government regulations and quotas.
B. To gain economic benefits from specialization and exchange.
C. To limit the variety of goods and services available to their citizens.
D. To create political and cultural barriers between nations.
2. What is the key difference between a hypothesis and a theory in the scientific context?
A. A theory is always mathematically complex, while a hypothesis is not.
B. A theory requires no testing, while a hypothesis must be testable.
C. A theory has been extensively tested and found accurate, while a hypothesis is a
tentative explanation.
D. A theory is only descriptive, while a hypothesis can be explanatory as well.
3. According to classical trade theory, what drives international trade?
A. Differences in factor endowments (labor, capital, land)
B. Government subsidies and trade barriers
C. Cultural preferences and nationalistic sentiments
D. All of the above
4. According to the Heckscher-Ohlin-Samuelson (H-O-S) model, a nation tends to export
goods intensively using its:
A. Scarcest and most expensive factor.
B. Most abundant and cheapest factor.
C. Least efficient factors within domestic production.
D. Factors with equal endowments across industries.
5. New Trade Theories primarily focus on explaining trade patterns through:
A. Traditional comparative advantage based on factor endowments.
B. Imperfect competition, economies of scale, and product differentiation.
C. Government intervention and protectionist policies.
 D. The balance of payments and exchange rate fluctuations.
6. What is a key difference between the import substitution and export promotion trade
strategies?
A. Import substitution prioritizes free trade, while export promotion advocates
protectionism.
B. Import substitution focuses on promoting manufactured exports, while export
promotion emphasizes primary exports.
C. Import substitution aims to develop domestic production of previously imported goods,
while export promotion seeks global market integration.
D. Import substitution encourages foreign direct investment, while export promotion
discourages it.
7. The balance of payments records a country's ____ with the rest of the world.
A. Investments
B. trade flows
C. current account and capital account
D. all of the above
8. A depreciation of the exchange rate will likely ____.
A. make exports cheaper and imports more expensive
B. make both exports and imports cheaper
C. make both exports and imports more expensive
D. have no effect on import and export prices
9. The International Monetary Fund (IMF) primarily focuses on promoting ____.
A. international trade growth
B. financial stability and development
C. poverty reduction and economic growth
D. environmental sustainability
10. Developing countries facing high debt burdens are often advised to implement ____
policies.
A. increased borrowing and spending
B. export promotion and debt restructuring
C. trade protectionism and capital controls
D. reduced investments in infrastructure and education

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Macroeconomics
1. Which of the following statements is true according to the neoclassical investment theory?
A. Investment is positively related to the real interest rate
B. Investment is negatively related to the marginal productivity of capital.
C. Investment is independent of the output level.
D. The difference between the return on capital and the cost of capital determines
investment.
2. Which of the following statements is true according to the life-cycle consumption
hypothesis?
A. Consumption depends on the current income of the household
B. Consumption depends on the expected lifetime income of the household
C. Consumption depends on the current interest rate of the economy
D. Consumption depends on the current price level of the economy.
3. Nominal GDP is
A. A preliminary estimate of GDP
B. GDP unadjusted for inflation
C. GDP adjusted for inflation
D. GDP less capital consumption allowance
4. If the government wants to attract investment, which of the following policy actions by the
central bank can help the government to achieve its objectives
A. Decrease interest rate C. Increase profit tax
B. Increase income tax D. Increase interest rate
5. Which of the following best describes crowding out effect?
A. Competition between the government and private borrowers for loanable funds
results in an increase in interest rates.
B. Increases in the costs of inputs lead to decreases in domestic production.
C. The Federal Reserve's open-market operations decrease the amount of funds banks
have available for lending.
D. The scarcity of funds forces Congress to decrease spending on critical public works
programs.
6. The short-run closed economy LM curve ____
A. Has a steeper slope when income elasticity of money demand is low
B. Has a flatter slope when interest rate elasticity of money demand is high
C. Has its slope dependent on an autonomous rise in money supply
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 D. None
7. According to the short-run Phillips curve, which of the following will occur when the
Central Bank increases the money supply?
A. Both the unemployment rate and the inflation rate will increase.
B. Both the unemployment rate and the inflation rate will decrease.
C. The unemployment rate will increase, and the inflation rate will decrease.
D. The unemployment rate will decrease, and the inflation rate will increase.
E. The inflation rate will increase, but the unemployment rate will remain constant.
8. Which of the following policies will most likely lead to a reduction in the natural rate of
unemployment?
A. Increasing government purchases of goods and services
B. Providing more job-training programs to help the less skilled
C. Increasing the duration of unemployment compensation
D. Increasing the money supply
9. If the marginal propensity to consume is 0.3, then the tax multiplier and the government
expenditure multipliers are
A. +1.428 and -0.428 C. -0.428 and +1.428
B. -0.225 and +0.214 D. +0.239 and +0.714
10. One is incorrect about the slope of IS curve of a closed economy
A. It has a positive slope
B. Steeper when the marginal propensity to save is higher
C. Flatter when the marginal propensity to consume is higher
D. Steeper when investment elasticity is lower

Development Economics
1. Which of the following is not a requirement for economic development?
A. Temperate climate. C. An Adequate Capital Base.
B. Natural Resources. D. Technological Advance.
2. Which of the following characteristics are most likely found in developing countries?
A. High population growth rates.
B. Large number of people living in poverty.
C. Very traditional methods of agricultural production.
D. all of the above
E. None of the above

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3. According to Lewis’s model, the dual economy grows only when
A. The modern sector increases its output share relative to the traditional sector.
B. Agricultural sector uses modern equipment.
C. Agricultural sector hires labor economically.
D. Modern manufacturing sector is labor-intensive.
4. As economic development proceeds, income inequality tends to follow a(n)
_________curve.
A. Convex. C. L-Shaped.
B. Inverted U-Shaped. D. S-Shaped.
5. Malthus's theory was that population
A. Increased proportionally to economic growth.
B. Increased geometrically, outstripping food supply, which grew arithmetically
C. Increased stagnantly with food supply and economic development.
D. Increased disproportionately, surpassing agricultural production.
6. Which of the following is not TRUE about education in LDCs?
A. A Public expenditure per student for higher education is about ten times as high as for
primary education.
B. The expansion of primary education redistributes benefits from the rich to the poor.
C. Economists unanimously agree that LDCs should put greater priority on primary
education.
D. Boys are sent to school far more often than girls.
7. According to Harris and Todaro, creating urban jobs by expanding industrial output
A. Is insufficient for solving the urban unemployment problem.
B. Will generate capital-intensive technologies.
C. Will generate more government revenue through urban wages.
D. Induces government to increase minimum wages.
8. Which of the following is not true about most farmers in LDCs?
A. The staple crop is the chief source of food.
B. Labor is underutilized except for planting and harvesting seasons.
C. On the traditional farm, output is always greater than consumption.
D. Cultivators farm only as much land as their families can work without hired labor.
9. Some economists and third-world policy makers criticize MNCs, arguing that they have a
negative effect on the developing country because they

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 I. Increase the LDC's technological dependence on foreign sources, resulting in less
technological innovation by local worker
II. Hamper local entrepreneurship and investment in infant industries.
III. Increase unemployment rates from unsuitable technology.
IV. Restrict subsidiary exports when they undercut the market of the parent company.
A. I and II only. C. I, II and III only.
B. III and IV only. D. I, II, III and IV.
10. International trade and specialization are determined by
A. Absolute Advantage. C. Absolute Costs.
B. Comparative Advantage. D. Production Possibility Frontier

Monetary Economics
1. Studying monetary economics is to understand the following except
A. the connection between, for example real output and its nominal
B. the theory of money and its implication in the economy
C. effects of the actions of monetary authorities on for example, real aggregate variable
D. how financial markets and financial institutions work and explore the role of money
in the economy
E. None of the above
2. A financial market that trade debt securities with maturities of one year or less is
A. Primary Markets C. Foreign Exchange Markets
B. Money Markets D. Capital Markets
3. A direct swap of one item for another without the use of money has the following defects
except.
A. each commodity in the market could not be stated simply as one quantity
B. the need for a double coincidence of wants
C. impossibility of transaction between a house and cars if the value of a house is 2 and
half cars
D. One commodity could be expressed as many times as the number of commodities
available in the Market
E. None of the above
4. All are functions of central bank except
A. Adviser to the government
B. restrict or expand the supply of cash

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 C. lender of the last resort
D. Custody of foreign exchange reserves
E. None of the above
5. Keynesians deputed all of the following assumptions of the classical model except,
A. Constant velocity D. Exogenous money supply
B. Flexible nominal prices E. None
C. Full employment
6. Which one of the following is false in the classical model?
A. Stable money demand function C. Constant velocity
B. Money neutrality D. Government intervention
7. According to Keynes’s theory of liquidity preference, velocity increases when
A. Interest rates increase
B. Wealth increases
C. Income increases
D. Brokerage commissions increase
8. The difference between the Friedman’s theory of the demand for money and the
Keynesian’s theory is that:
A. Friedman’s theory includes many assets as alternative to money.
B. Friedman viewed money and good as substitutes
C. Friedman take the expected return on money as to be constant.
D. Friedman suggested that demand for money is stable function.
9. A kind of money whose value is much greater than the intrinsic value of money is called,
A. full bodied money C. fait money
B. customary money D. token money
10. What will be the possible solution made by the government when there is inflation problem
in the country?
A. Reduce the interest rate
B. Increase the discount rate
C. Increase the loan able fund
D. Increase its expenditure on the construction of the infrastructure.

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Econometrics
1. Suppose that an undergraduate student has used the following multiple linear regression
model to investigate the determinants of students’ performance in Haramaya University by
employing cumulative GPA (𝐶𝐺𝑃𝐴𝑖) as the dependent variable as follows.
𝑪𝑮𝑷𝑨𝒊 = 𝜷𝟎 + 𝜷𝟏𝑿𝟏 + 𝜷𝟐𝑿𝟐 + 𝑼𝒊

Where 𝐶𝐺𝑃𝐴 is the cumulative GPA, X1 is the income of the parent of the student and 𝑋2 is
the time spent on studying. If 𝑋2 = 0.5𝑋1, what assumption of the linear regression model would
be violated?
A. The assumption of no autocorrelation
B. The assumption of no perfect multicollinearity
C. The assumption of homoskedasticity
D. The assumption of constant variance of 𝑈𝑖
2. In the regression model 𝑌𝑖 = 𝛽0 + 𝛽1 𝐷𝐶𝑖 + 𝛽2 𝐷𝐹𝑖 + 𝛽3 (𝐷𝐶𝑖 × 𝐷𝐹𝑖 ) + 𝑢𝑖 , where Y denotes
earnings, DC is a dummy variable for having a college degree, and DF is a gender dummy
variable, 𝜷𝟐
A. is the gender difference in earnings for someone with a college degree.

B. is the gender difference in earnings for someone without a college degree.

C. is the differential intercept of gender for those with and without a college degree
D. cannot be estimated since 𝐹𝑖 and (𝐶𝑖 × 𝐹𝑖 ) are perfectly collinear when 𝐹𝑖 = 0.
3. The proportion of variability in the dependent variable that is explained by the independent
variable in the regression model is known as
A. Coefficient of correlation C. Coefficient of determination
B. Coefficient of regression D. Coefficient of interaction
4. Why is the number of dummy variables to be entered into the regression model always
equal to the number of groups (k) minus 1 (k-1)?
A. To avoid the problem of serial correlation
B. To increase the R-squared value
C. To avoid the situation of perfect multicollinearity
D. To control for other variables in the model
5. Given the coefficient of determination or R2 = 0.24, sample size or n = 25, and the number
of parameters or k = 2, the adjusted- coefficient of determination will be
A. 0.034 B. 0.030

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 C. 0.178 D. 0.781
6. The group, category, or classification that is assigned with the value of 0 is referred to
as__________________.
A. the base category
B. the benchmark category
C. the control category
D. the omitted category.
E. All

7. Time series analysis helps to:

A. Understand the behaviours of a variable in the past

B. Predict the future behaviours of a variable
C. Plan future operations
D. All of the above
8. How do we interpret a dummy variable coefficient?
A. The difference between the two means
B. The difference between the two coefficients
C. The difference between two R-square values
D. None of the above
9. Heteroscedasticity is more likely in a problem of
A. Time series data C. Cross-sectional data
B. Pooled data D. A & C
10. Panel data have several advantages over purely cross-sectional or purely time series data.
These include:
A. Increase in the sample size
B. Study of dynamic changes in cross-sectional units over time
C. Study of more complicated behavioural models
D. All
E. None
Suppose that there is common sense that money demand depends on the interest rate and real
income. Based on this idea you have collected sample data presented in the following table.
Then answer the questions below the table (questions 12 - 15).

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Money Demand 21 16 18 25 18 43 44 42 32 36

Real interest rate 3 5 3 4 3 6 12 8 7 7

Real income 25 26 21 23 24 36 45 36 35 37

Let Y = Money Demand; X1 = Real interest rate and X2 = Real income

Y = α + β1X1 + β2X2 + ei

11. Given the above date the estimated value of β1 = _______________

A. 22.5 C. -1.236
B. 1.699 D. -15.67
12. Given the above date the estimated value of β2 = _______________
A. 22.5 C.-1.236

B. 1.699 D. -15.67

13. Given the above date the estimated value of α =________________

A. 22.5 C.-1.236

B. 1.699 D. -15.67

14. Which one of the following is not among the reasons for autocorrelation?

A. Cyclical fluctuations
B. Exclusion of variables from the regression model
C. Incorrect functional form of the model
D. None of the above

Microeconomics
1. Which one of the following is true about monopolistic competition?
A. Few firms selling a differentiated product
B. Many firms selling a homogeneous product
C. Few firms selling a homogeneous product
D. Many firms selling a differentiated product
E. None of the above
2. Which of the following is false about Isoquant?
A. The higher Isoquant represents the higher level of output.

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 B. It can cross each other.
C. It is negatively sloped.
D. It is convex to the origin.
3. Which of the following is not the determinant of VMPL?
A. Price of the final commodity.
B. The productivity of the capital.
C. Price of capital.
D. None

Suppose Asella Malt Factory is producing malt in perfectly competitive factor and product
market. The factory uses labour as a variable factor of production and VMP L and its MCL is
given by:-

VMPL = -18L+222 VMPL, value of marginal product of labour

MCL = 60 MCL, marginal cost of labour
4. What is the profit maximizing level of labour employment based on the above
information?
A. 12 C. 6
B. 31 D. 9
Consider two colluding firms Total Oil Company and Shell Oil Company. The cartel yield
the monopoly profit amounting to dollar 50,000. Those oil companies are also colluding not to
compete regarding the price of their product. But the problem comforting these colluding firms
has the same structure as the prisoner’s dilemma game. The strategy combinations and the
corresponding payoffs to each oil company are given the table as follows.

Shell Oil Company

Low price High price
Total oil company Low price 12,500, 12,500 30,000, 19,000

19,000, 30,000 25,000, 25,000

High price

5. What would be the outcome of the game if there is cooperation between companies?
A. Low price, low price C. High price low price
B. Low price, high price D. High price, high price
6. Which outcome is rational?

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 A. Low price, low price C. High price low price
B. Low price, high price D. High price, high price
7. Which outcome is Pareto efficient?
A. Low price, low price C. High price low price
B. Low price, high price D. High price, high price
8. One of the following can be considered as a reason not to enter in a cartel agreement
usually.
A. Because the environment is more competitive
B. Because uncertainty is increase when they
C. Because there is a temptation to cheat by the low -cost firm
D. Because firms cannot vary the style of their products and selling activities
9. Which one of the following is not a part of every game theory
A. Players D. Strategies
B. Payoffs E. None
C. Probabilities
10. Which of the following is not wrong?
A. Risk adverse individual will accept a fair gambling.
B. Risk loving individual will never accept a fair gambling.
C. Risk neutral individual will be indifferent to gambles which are just fair.
D. Risk neutral individual will reject a fair gambling
11. One is true about the Key differences between cardinal and ordinal utility approaches
A. The former assumes that utility cannot be measured in absolute terms
B. The ordinal approach is working in line with constant marginal utility of money
C. The cardinal approach is based on the consumer’s budget line and indifference
curves
D. The ordinal approach expresses utility in relative terms.
12. The short run is a time period in which;
A. The existence of at least one fixed input
B. The level of output is fixed
C. All resources are variable
D. Greater proportion of the fixed input
13. A large number of sellers all selling an identical product implies one of the following
A. Downward sloping firm’s demand curve
B. Firms get always positive profit in the short-run
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 C. The inability of any single seller/buyer to alter price of the product
D. Firms are interdependent
14. Which of the following is the correct order of market structure in terms of increasing
degree of competition across firms?
A. Monopoly—Perfect Competition—Oligopoly—Monopolistic Competition
B. Monopoly—Oligopoly—Monopolistic competition—Perfect competition
C. Perfect competition—Oligopoly—Monopoly—Monopolistic competition
D. Perfect competition—Monopolistic Competition—Oligopoly—Monopoly
15. One of the following is a common feature of monopolistically competitive and
oligopolistic market structure
A. Existence of many sellers
B. Ease of entry and exit
C. Advertising cost
D. Price competition

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