OROMIA EDUCATION BUREAU

FIRST ROUND ECONOMICS MODEL EXAM FOR GRADE 12 STUDENTS, 2017/202

Choose the best answers the following question
1. The study of the structure and performance of national economies and of the policies that governments
use to try to affect economic performance is
A. Microeconomics C. Business cycle
B. Macroeconomics D. Economic development
The correct answer is B.
Macroeconomics focuses on the overall structure and performance of national economies, including the
analysis of aggregate indicators and the policies that governments implement to influence economic
performance.
2. Which of the following is a key question macroeconomics seeks to answer?
A. What causes individual behavior in markets?
B. What are the factors affecting the demand for goods?
C. How can a nation increase its rate of economic growth?
D. What determines the pricing of individual goods?
The correct answer is C. This question pertains to macroeconomics as it focuses on the overall
economic performance and growth of a nation, rather than individual behaviors or specific markets.
3. How does the domestic economy interact with the rest of the world, according to macroeconomics?
A. Through microeconomic decisions C. Through global pricing systems
B. Through trade balance and exchange rates D. Through corporate decision-making
The Correct answer is B.
In macroeconomics, the interaction of the domestic economy with the rest of the world is primarily
analyzed through the trade balance (the difference between exports and imports) and exchange rates (the
value of one currency in relation to another). These factors influence how economies engage with each
other on a global scale.
4. When calculating GDP using the product approach, why are only final goods and services considered?
A. To avoid inflationary affects C. To prevent double counting
B. To measure government spending accurately D. To focus on consumer behavior
The correct answer is C.
When calculating GDP using the product approach, only final goods and services are considered to avoid
double counting the value of intermediate goods, which are used in the production of final goods.
This ensures that GDP accurately reflects the total value of goods and services produced in an economy.
5. Which macroeconomic goal is most crucial for sustaining long-term economic growth?
A. Achieving full employment C. Ensuring fair distribution of income
B. Reducing government debt D. Maintaining price stability
The correct answer is D.
Maintaining price stability is crucial for sustaining long-term economic growth because it helps to create
a predictable economic environment. Stable prices encourage investment and savings, which are essential
for long-term growth. High inflation or deflation can create uncertainty, negatively impacting economic
performance.
6. Which approach would you recommend to measure GDP if you want to focus on consumer spending?
A. Product approach C. Income approach
B. Net exports approach D. Expenditure approach
The correct answer is D.
The expenditure approach measures GDP by focusing on the total spending on final goods and services in
an economy, which includes consumer spending, business investments, government spending, and net
exports. If the goal is to focus specifically on consumer spending, the expenditure approach is the most
appropriate method.
7. If a government prints more money to pay for war time expenses, what kind of inflation is this likely to
cause?
A. Demand-pull inflation C. Currency-induced inflation
B. Cost-push inflation D. Structural inflation
The correct answer is A.
When a government prints more money to finance wartime expenses, it increases the overall money supply
in the economy. This can lead to higher demand for goods and services, as people and businesses have
more money to spend. If the supply of goods and services does not increase correspondingly, this
heightened demand can push prices up, resulting in demand-pull inflation.
8. If a country is in the contraction phase of the business cycle, what would you expect to happen to
employment?
A. Unemployment will decrease C. Employment will stabilize
B. Unemployment will increase D. Employment will increase
The correct answer is B
During the contraction phase of the business cycle, economic activity slows down, leading to reduced
demand for goods and services. As a result, businesses may cut back on production and lay off workers,
which typically causes an increase in unemployment.
9. Which one of the following is constitutes GDP in income approach?
A. Consumption, investment, government spending and net export
B. Wage and salary, depreciation, rental income, profit and indirect business tax.
C. Export, investment, rental income, and compensation of employee.
D. Compensation of employee, Investment, interest, and net factor income
The correct answer is B
The income approach to calculating GDP focuses on the total income earned by factors of production in
an economy, which includes wages and salaries, rental income, profits, and taxes minus subsidies.
10. Suppose that the prices of imported consumption goods rose from the base year, which is the
most accurate statement about CPI and the GDP deflator
A. The CPI rises but the GDP deflator doesn’t change
B. Both the GDP deflator and CPI rise
C. The GDP rises but the CPI does not change
D. Both the GDP deflator and the CPI don’t change
The correct answer is A.
The Consumer Price Index (CPI) measures the price change of a basket of consumer goods, which
includes imported goods. Therefore, if the prices of imported consumption goods rise, the CPI would
increase. On the other hand, the GDP deflator measures the price change of all goods and services
produced domestically, so it would not be directly affected by changes in the prices of imported goods.
11. Which of the following is NOT an economic activity and hence not included while estimating national
income?
A. medical services rendered by a dispensary C. a lawyer doing his practice
B. a housewife doing household work D. a maid working full time with a family
The correct answer is B
While medical services, legal practice, and paid domestic work (like that of a maid) are considered
economic activities and contribute to national income, household work performed by a housewife is
typically not included in national income estimates because it is not compensated in the market.
12. Expenditure method focuses on measurement of National income at:
A. Phases of production of goods and services C. phase of income disposition
B. phase of income distribution D. phases of distribution of goods and services
The correct answer is D
The expenditure method of measuring national income focuses on the total spending on the economy's
final goods and services during a specific period. It accounts for consumption, investment, government
spending, and net exports, which are all related to the distribution and use of goods and services in the
economy.
13. A reasonable measure of the standard of living in a country is suggested to be:
A. Real GDP per person. C. Nominal GDP per person.
B. The growth rate of nominal GDP per person D. Real GDP
The correct answer is A
Real GDP per person (or per capita) is a commonly used measure of the standard of living in a country
because it accounts for inflation and provides a more accurate reflection of the average economic output
and living standards of individuals in the economy
14. Which of the following is considered creeping inflation?
A. Prices rise at a rate of 3% or less annually C. Prices double every 15 hours
B. Prices rise rapidly at 10-20% annually D. Prices rise over 50% per month
The correct answer is A.
Creeping inflation refers to a low and manageable rate of inflation, typically around 1% to 3% annually.
It is considered a normal part of a growing economy and is not seen as a significant problem.
15. In the case of a recession, how can a government stimulate the economy without worsening the national
debt?
A. By cutting taxes significantly and increasing government subsidies to businesses.
B. By investing in infrastructure and social programs that create jobs and stimulate demand.
C. By tightening fiscal policies and reducing public sector spending.
D. By printing money to increase government spending and reduce debt burden
Governments can stimulate the economy during a recession by implementing fiscal policies such as
targeted tax cuts, increasing public spending on infrastructure, and providing direct cash assistance to
citizens. These measures can boost demand without significantly increasing national debt if funded
through efficient spending and revenue management.
Options for Stimulating the Economy without Worsening National Debt
A. Cutting Taxes and Increasing Subsidies
 While cutting taxes can provide immediate relief to consumers and businesses, it may lead to
reduced government revenue, potentially worsening the national debt if not offset by spending cuts
or increased economic growth
B. Investing in Infrastructure and Social Programs
 This option is often seen as a viable way to stimulate the economy. Investments in infrastructure
can create jobs, enhance productivity, and stimulate demand. If funded through existing budget
reallocations or targeted revenue increases, it can mitigate the impact on national debt.
C. Tightening Fiscal Policies Reducing public sector spending can help control the national debt but
may also lead to decreased economic activity, which could exacerbate the recession. This approach
requires careful balancing to avoid stifling growth.
D. Printing Money
 While printing money can temporarily increase government spending, it risks inflation and can
undermine confidence in the currency. This approach is generally not sustainable for long-term
economic health.
  Conclusion among these options, B. Investing in infrastructure and social programs is often
considered the most effective way to stimulate the economy during a recession without
significantly worsening national debt, provided it is managed carefully.
16. ''Economic Development'' is different from ''Economic growth'', because development takes into
account:
A. Inter-temporal shifts in production possibility curves.
B. Output per unit of capital
C. Income distribution
D. Efficiency gains resulting from the use of new capital
The correct answer is C.
Economic development is a broader concept than economic growth. While economic growth refers to an
increase in a country's output or income (typically measured by GDP), economic development
encompasses improvements in living standards, income distribution, poverty reduction, and overall quality
of life. Therefore, income distribution is a key factor that distinguishes economic development from mere
economic growth.
17. Occasionally, rapidly rising prices for basic inputs such as energy result in higher prices for many goods
and services. The resulting inflation is best categorized as:
A. Cost Pull C. Demand pull
B. Cost Push D. Demand Push
The correct answer is B
Cost-push inflation occurs when the costs of production for goods and services increase, leading to higher
prices for consumers. This can happen due to rising prices for basic inputs, such as energy, which
increases the overall cost of production and results in higher prices for many goods and services
18. The type of unemployment that occurs due to absence of vacancies is:
A. Cyclical unemployment. C. Seasonal unemployment.
B. Frictional unemployment D. Structural unemployment
The correct answer is D.
Structural unemployment occurs when there is a mismatch between the skills of the workforce and the
needs of the job market, often due to changes in the economy, technology, or industry. This type of
unemployment can arise when there are not enough job vacancies available for the skills that workers
possess, leading to prolonged periods of unemployment for those affected.
19. Sisay voluntarily quit his job as an insurance agent to return to school full -time to earn a BA degree.
With Diploma in hand he is now searching for a position in management. Sisay presently is:
A. Cyclically unemployed. C. structurally unemployed
B. Frictionally unemployed D. seasonally unemployed
The correct answer is B.
Frictional unemployment refers to the temporary unemployment that occurs when individuals are in
between jobs or are transitioning from one job to another, such as when someone voluntarily leaves a job
to pursue further education or training. In Sisay's case, he voluntarily quit his job to return to school and
is now searching for a new position, which fits the definition of frictional unemployment.
20. To be officially unemployed a person must
A. Be waiting to be called back from a layoff. C. has just lost a job.
B. Be 23 years of age or older. D. be in the labor force
The correct answer is D.
To be officially classified as unemployed, a person must be part of the labor force, which includes
individuals who are actively seeking work and are available to work. Additionally, they must not be
currently employed. While options A and C describe situations that can lead to being classified as
unemployed, being in the labor force is the key requirement for official unemployment status.
21. A person is out of labor force if she/he
A. Is employed but currently looking for better job C. Is retired
B. Is laid off and looking for working D. Voluntarily quit and looking for work
The correct answer is C.
A person is considered out of the labor force if they are not actively seeking employment and are not
currently employed. Being retired means that the individual is not participating in the labor market, thus
classifying them as out of the labor force. Options A, B, and D all involve individuals who are either
employed or actively seeking work, which means they are still considered part of the labor force.
22. The natural rate of unemployment is:
A. Higher than the full-employment rate of unemployment.
B. Lower than the full-employment rate of unemployment.
C. Found by dividing total unemployment by the size of the labor force.
D. That rate of unemployment occurring when the economy is at its potential output
The correct answer is D the natural rate of unemployment refers to the level of unemployment that exists
when the economy is operating at its full potential, which includes frictional and structural unemployment
but excludes cyclical unemployment. It represents a situation where the labor market is in equilibrium,
and the economy is producing at its potential output.
23. Business cycle shows short run fluctuations in:
A. GDP and GNP C. interest rate and investment
B. Employment and output D. Aggregate demand and supply
The correct answer is A
The business cycle refers to the short-run fluctuations in economic activity, primarily measured by
changes in Gross Domestic Product (GDP) and Gross National Product (GNP). These fluctuations can
include periods of expansion (growth) and contraction (recession) in the economy. While employment and
output (option B) are also affected by the business cycle, GDP and GNP are the primary indicators used to
represent these fluctuations.
24. Which of the following marks as beginning of business cycle?
A. Trough C. Peak
B. Recovery D. Recession
The correct answer is A.
The trough marks the beginning of a business cycle. It is the lowest point of the cycle, where economic
activity is at its lowest, and it signals the end of a recession. After the trough, the economy begins to
recover and move into an expansion phase.
25. Economists from which of the following schools of thought are most likely to favour activist government
policies?
A. Keynesian C. Monetarist
B. Classical D. New classical
The correct answer is A.
Keynesian economists advocate for activist government policies, particularly fiscal policy, to manage
economic fluctuations and stimulate demand during periods of recession or economic downturn. They
believe that government intervention can help stabilize the economy and promote full employment. In
contrast, classical and monetarist schools tend to emphasize the self-correcting nature of markets and are
less supportive of active government intervention.
26. A group of modern economists who believe that price and wage rigidities do not provide the only
rationale for macroeconomic policy activism are called
A. New-Keynesians C. Monetarists
B. Keynesians. D. The Classical School
The correct answer is A.
New-Keynesian economists build on traditional Keynesian ideas but argue that price and wage
rigidities are not the only reasons for advocating macroeconomic policy activism. They incorporate
microeconomic foundations into their models and emphasize the importance of factors like imperfect
competition and information asymmetries, which can justify government intervention in the economy.
27. Which of the following curves does NOT appear in the AS-AD model?
A. Short run Aggregate supply C. long run Aggregate supply
B. Aggregate demand D. long run Aggregate demand
The correct answer is D.
In the Aggregate Supply-Aggregate Demand (AS-AD) models, the curves that typically appear are the
Short-Run Aggregate Supply (SRAS), Long-Run Aggregate Supply (LRAS), and Aggregate Demand
(AD). There is no concept of "long run Aggregate demand" in this model; aggregate demand is
considered in both the short run and long run, but it does not have a separate long-run curve.
28. How long run aggregate supply curve can shift?
A. Due to a short run change in investment C. Due to a long run change in consumption
B. Due to a short run change in demand D. Due to a long run change in investment
The correct answer is D
The Long-Run Aggregate Supply (LRAS) curve can shift due to long-term changes in factors that affect
the economy's productive capacity, such as changes in investment, technology, labor force, and resources.
A long-run change in investment can lead to an increase in capital stock, which can shift the LRAS curve
to the right, indicating an increase in potential output.
29. Which of the following is NOT a reason why the aggregate demand curve slopes downward?
A. The exchange-rate effect C. The monetary neutrality effects
B. The wealth effect. D. The interest-rate effect
30. The increase in spending that occurred because of the increase in the real value of money when the price
level falls is
A. The interest rate effect C. The foreign trade effect
B. The wealth effect D. The income effect
The correct answer is B
The wealth effect refers to the increase in consumer spending that occurs when the real value of money
(and other assets) rises due to a decrease in the price level. When prices fall, the purchasing power of
money increases, making consumers feel wealthier, which can lead to increased spending.
31. Why is the Short run aggregate supply curve upward sloping?
A. Because wages are flexible in the short run
B. Because firms produce more as prices rise
C. Because of the misperception theory
D. Because workers are always fully employed
The correct answer is B.
The Short-Run Aggregate Supply (SRAS) curve is upward sloping because, in the short run, as the overall
price level increases, firms are willing to produce more goods and services. This is due to the fact that
higher prices can lead to higher revenues, which incentivizes firms to increase production, assuming that
their costs (such as wages) do not rise immediately in response to the price level increase.
32. How should policy makers respond to a persistent supply-side shock that reduces aggregate supply in the
short run?
A. Increase government spending to stimulate demand C. Raise interest rates to decrease inflation
B. Reduce taxes to encourage production D. Keep monetary policy unchanged
The correct answer is B.
In response to a persistent supply-side shock that reduces aggregate supply, policymakers may consider
reducing taxes to encourage production. Lower taxes can provide firms with more capital to invest in
production, potentially helping to offset the negative effects of the supply shock. This approach aims to
stimulate the supply side of the economy by incentivizing businesses to increase output. Options A and C
focus on demand-side measures, which may not be effective in addressing a supply-side issue. Option D,
keeping monetary policy unchanged, may not adequately address the challenges posed by the supply
shock.
33. What is the Potential difference between long-run and short-run aggregate supply (LRAS and SRAS)?
A. LRAS is vertical, and SRAS is upward-sloping
B. LRAS is horizontal, and SRAS is downward-sloping
C. LRAS represents full employment, while SRAS reflects changes in the price level
D. LRAS depends on the price level, and SRAS depends on the level of output
The correct answer is A. LRAS is vertical, and SRAS is upward-sloping.
In the Aggregate Supply-Aggregate Demand (AS-AD) model
 The Long-Run Aggregate Supply (LRAS) curve is vertical, indicating that in the long run, the total
output of the economy (potential output) is determined by factors such as technology, resources,
and labor, and is not affected by the price level.
 The Short-Run Aggregate Supply (SRAS) curve is upward-sloping, meaning that in the short run,
as the price level increases, firms are willing to produce more goods and services due to higher
revenues, assuming that some input costs (like wages) are sticky or fixed in the short run.
This distinction highlights the different behaviors of the economy in the short run versus the long run.
34. Suppose a country is facing high inflation and high unemployment simultaneously. What could the
government do to address both problems without worsening the situation?
A. Increase government spending to stimulate demand, but also tighten the money supply to control
inflation.
B. Raise interest rates to reduce inflation, but cut taxes to encourage investment.
C. Reduce interest rates to encourage borrowing, while also cutting wages to control inflation.
D. Increase government subsidies for businesses to promote growth while reducing social benefits.
The correct answer is B
This option attempts to address both high inflation and high unemployment by using a combination of
monetary and fiscal policy. Raising interest rates can help control inflation by reducing consumer
spending and borrowing. At the same time, cutting taxes can encourage investment and stimulate
economic growth, which may help reduce unemployment.
While this approach may not completely resolve both issues simultaneously, it aims to balance the need to
control inflation while also promoting economic activity to address unemployment.
Options A and C may exacerbate one of the problems (inflation or unemployment) rather than effectively
addressing both. Option D may not directly address the inflation issue while trying to promote growth
35. Suppose the economy is initially in long-run equilibrium. Then suppose there is an increase in military
spending due to rising international tensions. According to the model of aggregate demand and aggregate
supply, what happens to prices and output in the long run?
A. Output falls; prices are unchanged from the initial value.
B. Prices fall; output is unchanged from its initial value.
C. Output and the price level are unchanged from their initial values.
D. Prices rise; output is unchanged from its initial value
The correct answer is D
In the aggregate demand and aggregate supply model, an increase in military spending would shift the
Aggregate Demand (AD) curve to the right, leading to an increase in the price level in the short run.
However, in the long run, the economy will return to its potential output level, which is determined by
factors such as technology, resources, and labor.
As the economy adjusts back to long-run equilibrium, the increase in demand will lead to higher prices,
but output will return to its original level, as it is determined by the long-run Aggregate Supply (LRAS)
curve, which is vertical. Thus, in the long run, we expect prices to rise while output remains unchanged
from its initial value.
36. The another name for an open access property is;
A. Tragedy of the Commons. C. Social marginal cost
B. Greenhouse effect. D. public good.
The correct answer is A.
An open access property refers to resources that are available for anyone to use without restrictions,
which can lead to overuse and depletion of those resources. This situation is often described by the
"Tragedy of the Commons," a concept that illustrates how individuals acting in their own self-interest can
ultimately harm the common good by depleting shared resources.
37. One of the following is NOT a source of market failure?
A. Public goods C. Product is both rival and excludable
B. Presence of externalities D. Asymmetric information
To provide an accurate answer, I would need the specific options you are considering for the sources of
market failure. However, I can give you a general idea of common sources of market failure, which
include:
A product that is both rival and excludable is typically classified as a private good. Private goods do not
lead to market failure because they can be efficiently allocated in a competitive market. In contrast, the
other options (public goods, presence of externalities, and asymmetric information) are all sources of
market failure.
1. Externalities: Costs or benefits that affect third parties not involved in a transaction (e.g.,
pollution).
2. Public Goods: Goods that is non-excludable and non-rivalrous, leading to underproduction (e.g.,
national defense).
3. Market Power: Situations where a single firm or a group of firms can control prices (e.g.,
monopolies).
4. Information Asymmetry: When one party in a transaction has more or better information than the
other (e.g., used car sales).
A potential answer that is NOT a source of market failure could be something like "perfect
competition," as this is a market structure that typically leads to efficient outcomes rather than
failure. If you provide the specific options, I can help identify which one is NOT a source of
market failure.
The correct answer is C. Product is both rival and excludable.
38. What allows a nation’s courts to intervene in a market to address externalities?
A. Protocols. C. Command-and-control regulations.
B. Lawsuits. D. Open access property
The correct answer is B
Lawsuits allow a nation's courts to intervene in a market to address externalities. When externalities
occur, affected parties can seek legal recourse through the courts to hold responsible parties accountable
for the costs or damages caused by their actions. This legal framework enables individuals or groups to
seek compensation or injunctions to mitigate the negative effects of externalities.While command-and-
control regulations (option C) are another way to address externalities through government intervention,
the question specifically asks about the role of courts, making lawsuits the most appropriate answer.
39. Which of the following is NOT a consumer right under the Ethiopian Consumer Protection Act?
A. Right to sufficient information about goods C. Right to demand an unreasonable price
B. Right to buy based on personal choice D. Right to claim compensation for damages
The Ethiopian Consumer Protection Act recognizes several key consumer rights, including the right to
receive sufficient and accurate information about goods and services, the right to safety, the right to
choose, and the right to seek redress. These rights aim to protect consumers from unfair practices and
ensure they are treated with respect. C
40. Which of the following is an argument for consumer protection?
A. To protect businesses from competition C. To increase the price of goods
B. To ensure consumers are not exploited by unethical practices D. To eliminate consumer choice
The correct answer is B. To ensure consumers are not exploited by unethical practices.
This option highlights the primary purpose of consumer protection, which is to safeguard consumers from
unfair, deceptive, or harmful practices by businesses. Consumer protection laws and regulations aim to
promote fair trade, competition, and accurate information in the marketplace, ensuring that consumers
can make informed choices and are treated fairly.
The other options do not align with the goals of consumer protection:
A suggests protecting businesses from competition, which is not a goal of consumer protection.
C implies increasing prices, which is generally contrary to consumer protection objectives.
D suggests eliminating consumer choice, which is also not a goal of consumer protection.
41. If a consumer is insured and takes more risks, this is valued as an example of:
A. Adverse selection C. Price discrimination
B. Moral hazard D. Positive externality
The correct answer is B
Moral hazard refers to the situation where a party is more likely to take risks because they do not bear the
full consequences of those risks, often due to the presence of insurance. In this case, if a consumer is
insured, they may engage in riskier behavior because they know that the insurance will cover the potential
losses, leading to a higher likelihood of risky actions.
42. The meaning of "reciprocal externalities" is:
A. Externalities that affect only the producer
B. A situation where both parties involved in a transaction impose externalities on each other
C. Externalities that occur in a one-way relationship
D. Externalities that are ignored by the market
The correct answer is B.
Reciprocal externalities occur when two parties in a transaction affect each other through their actions,
creating external costs or benefits for both. This means that each party's behavior has implications for the
other, leading to a mutual impact that can complicate the assessment of overall welfare and market
efficiency.
43. Which of the following is a type of business malpractice that falls under consumer protection?
A. Charging more than the maximum retail price C. Providing excess information about a product
B. Selling goods below market price D. Giving consumer discounts on multiple products
The correct answer is A. Charging more than the maximum retail price.
Charging more than the maximum retail price is considered a type of business malpractice that falls
under consumer protection laws, as it can be seen as exploiting consumers by overcharging for goods.
This practice can lead to unfair pricing and is typically regulated to protect consumers from being taken
advantage of.The other options (B, C, and D) do not represent malpractice in the context of consumer
protection:
B (Selling goods below market price) is generally not considered malpractice; it can be a competitive
strategy.
C (Providing excess information about a product) is usually beneficial for consumers, as it helps them
make informed decisions.
D (Giving consumer discounts on multiple products) is also a common marketing practice that benefits
consumers.
44. The main objective of consumer protection laws is appreciable:
A. To increase consumer spending
B. To safeguard the interests of consumers from unethical business practices
C. To ensure businesses make higher profits
D. To eliminate competition in the market
The correct answer is B. To safeguard the interests of consumers from unethical business practices.
The main objective of consumer protection laws is to protect consumers from unfair, deceptive, or harmful
practices by businesses. These laws aim to ensure that consumers have access to accurate information,
safe products, and fair treatment in the marketplace, thereby promoting consumer rights and welfare. The
other options do not align with the primary goals of consumer protection:
A (To increase consumer spending) is not a direct objective of consumer protection laws.
C (To ensure businesses make higher profits) is contrary to the purpose of consumer protection, which
focuses on consumer welfare rather than business profits.
D (To eliminate competition in the market) is also not a goal of consumer protection laws; in fact, these
laws often aim to promote fair competition.
45. Which of the following is LEAST likely lead to inflationary monetary policy?
A. Rising unemployment C. Declining oil prices
B. Expanding federal budget deficits D. Conflict in the North Ethiopia
The option that is LEAST likely to lead to inflationary monetary policy is A. Rising unemployment.
Rising unemployment typically indicates a weaker economy with lower demand for goods and services,
which can lead to deflationary pressures rather than inflation. In such a scenario, central banks may
adopt more accommodative monetary policies to stimulate the economy, but this is not directly
inflationary.
In contrast:
B. Expanding federal budget deficits can lead to inflationary pressures if financed by increasing the
money supply.
C. Declining oil prices can reduce costs for consumers and businesses, potentially leading to lower
inflation or deflation.
D. Conflict in the North Ethiopia could disrupt supply chains and lead to inflationary pressures due to
increased uncertainty and potential shortages.
Thus, rising unemployment is the least likely to lead to inflationary monetary policy.
46. Which of the following is a type of open-market operation?
A. The government sells Treasury bills to the public.
B. The government prints money and uses it to buy army uniforms.
C. The State bank sells Treasury bills to the public.
D. The State bank buys foreign currency in the exchange market
The correct answer is A. The government sells Treasury bills to the public.
Open-market operations refer to the buying and selling of government securities (such as Treasury bills)
in the open market by a central bank (or government) to regulate the money supply and influence interest
rates. When the government sells Treasury bills, it is effectively taking money out of circulation, which
can help control inflation.
The other options do not represent open-market operations:
B (The government prints money and uses it to buy army uniforms) involves direct government spending
rather than market operations.
C (The State bank sells Treasury bills to the public) is similar to option A but is less commonly phrased in
the context of open-market operations, which typically refer to actions taken by the central bank rather
than the state bank.
D (The State bank buys foreign currency in the exchange market) relates to foreign exchange operations,
not open-market operations involving domestic government securities.
47. What effect does a country's political instability have on its exchange rate?
A. It tends to increase the demand for the currency, appreciating it.
B. It tends to lower foreign investment, leading to depreciation of the currency.
C. It leads to currency stability.
D. It causes the currency to be pegged to another country’s currency
Political instability typically leads to market uncertainty, causing investors to seek safer investment options.
This behavior often results in a depreciation of the country's currency as confidence in the economy
diminishes, leading to increased volatility in exchange rates.
Correct Answer: B. It tends to lower foreign investment, leading to depreciation of the currency.
Effects of Political Instability on Exchange Rates:
 Lower Foreign Investment:
 Political instability creates an unpredictable environment for investors.
Investors are likely to withdraw their investments or avoid entering the market, leading to reduced
capital inflow.
 Currency Depreciation:
As foreign investment decreases, demand for the currency declines.
This can lead to a depreciation of the currency, making it less valuable compared to other
currencies.
 Increased Volatility:
Political events can lead to sudden changes in market sentiment.
This volatility can further exacerbate currency depreciation as traders react to news and events.
 Investor Sentiment:
A lack of confidence in the political system can lead to a flight to safety, where investors prefer
stable currencies.
This shift can result in a significant drop in the value of the unstable country's currency.
Conclusion: Political instability generally has a negative impact on a country's exchange rate,
primarily through reduced foreign investment and increased currency depreciation.
48. When demand pull inflation occurs, what type of policy may help to control it?
A. Expansionary Fiscal Policy. C. Expansionary Monetary Policy.
B. Contractionary Fiscal Policy. D. Contractionary Monetary Policy
To control demand-pull inflation, contractionary monetary and fiscal policies are typically employed. This
includes raising interest rates to reduce aggregate demand and decreasing government spending or
increasing taxes to further limit consumer spending.
Correct Answer: D. Contractionary Monetary Policy.
Understanding Demand-Pull Inflation:
Definition:
Demand-pull inflation occurs when aggregate demand in an economy outpaces aggregate supply,
leading to increased prices.
Causes:
Increased consumer spending, government expenditure, or investment can drive demand beyond the
economy's capacity to produce goods and services.
Policies to Control Demand-Pull Inflation:
Contractionary Monetary Policy:
Interest Rate Increases:Central banks may raise interest rates to make borrowing more expensive.Higher
rates discourage consumer and business spending, reducing aggregate demand.
Reduced Money Supply:
Central banks can also sell government securities to absorb excess money from the economy. This action
further tightens liquidity, leading to lower spending and investment.
Contractionary Fiscal Policy:
Decreased Government Spending:
Reducing government expenditures can directly lower aggregate demand.
This may involve cutting public projects or services that stimulate economic activity.
Increased Taxes:
Raising taxes can reduce disposable income for consumers and businesses.
This leads to decreased consumption and investment, helping to control inflation.
Conclusion: To effectively manage demand-pull inflation, contractionary monetary policy is the primary
tool, often complemented by contractionary fiscal measures to ensure a comprehensive approach to
reducing inflationary pressures.
49. Which one of the following is NOT advantages of floating exchange rate?
A. Lack of policy constraints C. Speculation
B. Protection from external shocks D. Correction of balance of payment deficit
A. Lack of policy constraints: This is an advantage of floating exchange rates because countries have more
flexibility in their monetary policy without the need to maintain a fixed exchange rate.
B. Protection from external shocks: Floating exchange rates can provide some protection against external
shocks, as the currency can adjust to reflect changes in economic conditions, helping to stabilize the
economy.
C. Speculation: This is generally considered a disadvantage of floating exchange rates. Speculation can lead
to increased volatility in exchange rates, which can create uncertainty for businesses and investors. While
speculation can also provide liquidity to the market, it is not an inherent advantage of the floating exchange
rate system.
D. Correction of balance of payment deficit: A floating exchange rate can help correct balance of payments
deficits as the currency may depreciate, making exports cheaper and imports more expensive, thus improving
the trade balance.
In summary, while floating exchange rates have several advantages, speculation is not one of them and is
often viewed as a potential drawback.
NOT an advantage of a floating exchange rate is C. Speculation.
50. A Deliberate changes in government spending and tax collections to achieve socio-economic goal is
A. monetary policy C. Fiscal policy
B. direct controls D. policy rule
The correct answer is C
FISCAL POLICY
This refers to the deliberate changes in government spending and tax collections aimed at influencing the
economy to achieve specific socio-economic goals, such as economic growth, full employment, and price
stability.
MONETORY POLICY
This involves the management of the money supply and interest rates by a central bank to control inflation
and stabilize the currency.
DIECTING CONTROL
These are regulatory measures imposed by the government to control prices, wages, or production levels,
but they do not specifically refer to changes in government spending and tax collections.
POLICY RULE
These are guidelines or frameworks that dictate how policies should be implemented, but they do not refer
specifically to the actions of changing government spending and taxes.
Thus, fiscal policy is the correct term for the deliberate changes in government spending and tax
collections to achieve socio-economic goals.
51. If the government is interested to target specific sectors of the economy, which policy instrument
would be used?
A. Fiscal policy C. Income policy.
B. Monetary policy D. Exchange rate policy
The correct answer is A. Fiscal policy
FISCAL POLICY
This involves government spending and tax policies that can be directed toward specific sectors of the
economy. For example, the government can increase spending on infrastructure, education, or
healthcare, or provide tax incentives to encourage investment in certain industries. This targeted approach
allows the government to influence specific sectors directly.
MONETORY POLICY This refers to the management of the money supply and interest rates by a central
bank. While it can influence the overall economy, it is not typically used to target specific sectors directly.
INCOME POLICY
This generally refers to measures aimed at controlling wages and prices, but it does not specifically target
sectors of the economy in the same way fiscal policy does.
EXCHANGE RATE POLICY
This involves managing the value of a country's currency relative to others, which can affect trade but is
not a direct tool for targeting specific sectors.
Therefore, if the government wants to target specific sectors of the economy, fiscal policy is the most
appropriate instrument to use.
52. Which of the following measures have to be adopted to curb out inflation from the economy?
A. Increase in government expenditure and reduction in taxation.
B. Decrease in Government expenditure and increase in taxation.
C. Increase in transfer payments and increase in taxation.
D. Decrease in transfer payments and decrease in taxation
The correct answer is B. Decrease in Government expenditure and increase in taxation.
Explanation: To curb inflation, the government typically adopts contractionary fiscal policies, which
involve reducing overall demand in the economy. Here’s how the options relate to this goal:
A. Increase in government expenditure and reduction in taxation: This would likely increase aggregate
demand, potentially worsening inflation.
B. Decrease in Government expenditure and increase in taxation: This is a contractionary approach.
Reducing government spending decreases overall demand in the economy, while increasing taxes reduces
disposable income for consumers, leading to lower consumption. Both actions help to curb inflation.
C. Increase in transfer payments and increase in taxation: Increasing transfer payments (like welfare
benefits) would increase demand, which could exacerbate inflation, even if taxes are increased.
D. Decrease in transfer payments and decrease in taxation: Decreasing transfer payments could reduce
demand, but decreasing taxes would increase disposable income and consumption, which could lead to
higher inflation. Thus, option B is the most effective measure to curb inflation in the economy.
53. Suppose the value of Kenyan shilling in terms of Sudanese pound is getting lower. What is the impact
of these on Kenyan export to Sudan?
A. It will make the price of Kenyan goods in Sudanese market cheaper.
B. It will make the price of Sudanese Import in the Kenyan market expensive.
C. It will decrease Kenya’s export earnings.
D. It will increase Kenya’s export earnings
The depreciation of the Kenyan shilling can make Kenyan exports more competitive in Sudan by lowering
their prices in local currency terms. However, the recent significant drop in tea exports to Sudan, which
fell by nearly 74% in the year to March 2024, indicates that other factors, such as political instability, may
also be impacting trade.
Analysis of the Impact of Depreciation of the Kenyan Shilling on Exports to Sudan
A. It will make the price of Kenyan goods in Sudanese market cheaper:
This statement is true. A lower value of the Kenyan shilling means that Kenyan goods become cheaper for
Sudanese buyers when converted to Sudanese pounds, potentially increasing demand for these goods.
B. It will make the price of Sudanese imports in the Kenyan market expensive:
This is also true. As the shilling depreciates, the cost of importing goods from Sudan will rise, making
Sudanese products more expensive in Kenya.
C. It will decrease Kenya’s export earnings:
This statement is misleading. While the shilling's depreciation can lead to lower export earnings in terms
of shillings, it can also increase competitiveness and potentially boost export volumes, depending on
market conditions.
D. It will increase Kenya’s export earnings:
This can be true if the increase in demand for cheaper Kenyan goods outweighs any negative impacts
from other factors affecting trade, such as political instability.
Conclusion:
The most accurate impact of the depreciation of the Kenyan shilling in this context is A, as it directly
relates to the pricing of Kenyan goods in the Sudanese market. However, the overall effect on export
earnings may vary based on other influencing factors.
54. Suppose the Ethiopian Population is estimated to be 120 million in the year 2016 E.C. The number of
children below the age of 14 is 30 million while the number of the elder ones above the age of 65 is 10
million. If the total number of economically inactive population is 5 million whereas those people who
are unemployed are 20 million. Then what are the total number of labour force and the employment rate,
respectively?
A. 20 million & 27% B.73 million & 75 % C.75 million & 73% D. 27 million & 20%
ANSWERS C.75 million & 73%
55. If a farmer sells Wheat to miller for birr.1000 and miller sells flour to baker for birr.1200 and baker sells
bread to consumer for birr.1500, then total value added by Miller and baker is:
A. 500 B. 1000 C.1200 D.1500
Thus, the total value added by the miller and the baker is A. 500 birr.
56. What is meant by "unrequited" in the definition of tax?
A. Taxes paid voluntarily C. Taxes paid without a direct return benefit
B. Taxes paid in return for goods D. Taxes collected based on income
The correct answer is C
The term "unrequited" in the context of taxes indicates that taxpayers do not receive a specific, direct
benefit in exchange for the taxes they pay. Instead, taxes are used to fund public goods and services that
benefit society as a whole, rather than providing a direct return to the individual taxpayer.
57. _______________is imposed on selected goods such as luxury goods, Cigarettes and Alcohols.
A. Withholding tax C. Excise duties
B. Stamp duties D. Sur tax
The correct answer is C. Excise duties.
Explanation:
Excise Duties: These are taxes imposed on specific goods, particularly those considered non-essential
or luxury items, such as alcohol, tobacco (cigarettes), and other luxury goods. Excise duties are
 typically included in the price of the product and are intended to discourage consumption of these
goods or to generate revenue for the government.
A. Withholding tax: This is a tax withheld from income, such as wages or dividends, and is not
specifically related to selected goods.
B. Stamp duties: These are taxes on legal documents, such as contracts and property transactions,
rather than on specific goods.
D. Sur tax: This term generally refers to an additional tax on top of an existing tax, but it is not
specifically related to selected goods like excise duties are.
58. What is the key characteristic of a good tax system?
A. It is voluntary and non-binding C. It is transparent and arbitrary
B. It is simple, financially adequate, and elastic D. It relies on high tax rates
The correct answer is B
A good tax system should have several key characteristics, including:
Simplicity: The tax system should be easy to understand and comply with, minimizing confusion for
taxpayers.
Financial Adequacy: The tax system should generate sufficient revenue to meet the government's
budgetary needs and fund public services.
Elasticity: The tax system should be able to adjust to changes in the economy, allowing for increased
revenue during economic growth and being sustainable during downturns.
59. What does a progressive tax system ensure?
A. Everyone pays the same amount of tax C. Wealthy individuals pay fewer taxes
B. Higher-income individuals pay a higher share of tax D. Taxes are regressive for all income groups
The correct answer is B
A progressive tax system is designed so that individuals with higher incomes pay a larger percentage of
their income in taxes compared to those with lower incomes. This means that as a person's income
increases, the tax rate they pay also increases, ensuring that wealthier individuals contribute a higher
share of their income in taxes.
60. Which principle of taxation ensures that taxpayers are taxed based on their ability to pay?
A. Canon of economy C. Canon of fiscal adequacy
B. Canon of equity D. Canon of certainty
The correct answer is B
The Canon of Equity (or the principle of equity) in taxation states that taxpayers should be taxed
according to their ability to pay. This principle emphasizes fairness in the tax system, ensuring that
individuals with higher incomes contribute a larger share of their income in taxes compared to those
with lower incomes.
61. In which situation would the principle of "tax incidence" be most relevant?
A. When distributing the burden of tax among different groups
B. When determining the source of government revenue
C. When calculating tax rates for different commodities
D. When establishing the due date for tax payments
The correct answer is A.
The principle of "tax incidence" refers to the analysis of the effect of a particular tax on the distribution
of economic welfare. It focuses on who ultimately bears the burden of a tax—whether it is the consumers,
producers, or other groups. Understanding tax incidence is crucial for assessing how different groups are
affected by tax policies and how the burden of taxation is shared among them.
62. What is a key difference between direct and indirect taxes?
A. Direct taxes are paid by consumers; indirect taxes are paid by producers
B. Direct taxes are paid by the income earner; indirect taxes are paid by consumers
C. Direct taxes are not compulsory; indirect taxes are compulsory
D. Direct taxes impact consumers, whereas indirect taxes impact producers
The correct answer is B
Direct Taxes: These are taxes that are levied directly on an individual's or entity's income or wealth. The
burden of direct taxes falls on the person or entity that earns the income, such as income tax or property
tax.
Indirect Taxes: These are taxes that are levied on goods and services and are typically included in the
price of those goods and services. The burden of indirect taxes is passed on to consumers, who pay the tax
when they purchase the goods or services, such as sales tax or value-added tax (VAT).
63. If a government wants to ensure economic stability and growth, which principle should it adopt when
designing a tax system?
A. Simplicity and fairness C. High rates of direct taxes
B. Dependence on foreign aid D. Flexibility and economic efficiency
The correct answer is D
When designing a tax system aimed at ensuring economic stability and growth, it is crucial for the system
to be flexible and economically efficient.
Flexibility: A flexible tax system can adapt to changing economic conditions, allowing the government to
respond effectively to economic fluctuations, such as recessions or booms. This adaptability helps
maintain stability in the economy.
Economic Efficiency: An efficient tax system minimizes distortions in economic behavior, encouraging
investment, consumption, and overall economic activity. It should aim to raise revenue without
significantly hindering economic growth.
64. In what way does the “ability-to-pay” approach relate to vertical equity in taxation?
A. It ensures equal tax obligations for all taxpayers.
B. It imposes higher tax burdens on those with greater financial resources.
C. It ensures that only the wealthy are taxed at higher rates.
D. It is not related to vertical equity.
The correct answer is B
The "ability-to-pay" approach to taxation is based on the principle that individuals should be taxed according
to their financial capacity to pay. This aligns with the concept of vertical equity, which holds that taxpayers
with a greater ability to pay should contribute a larger amount in taxes compared to those with lesser ability.
In essence, vertical equity supports the idea that tax burdens should increase with income or wealth, ensuring
that those who can afford to pay more do so, thereby promoting fairness in the tax system.
65. Which of the following is an exempt income in Ethiopia?
A. Salary from employment
B. Gratuity received upon termination of employment
C. Medical treatment expenses for employee
D. Rental income
The correct answer is C
In Ethiopia, certain types of income and benefits may be exempt from taxation. Among the options provided:
A. Salary from employment: This is generally subject to income tax and is not exempt.
B. Gratuity received upon termination of employment: Gratuities can be subject to taxation, depending
on the specific circumstances and amounts.
C. Medical treatment expenses for employee: Typically, medical treatment expenses provided by an
employer for an employee are considered a non-taxable benefit and are exempt from income tax.
D. Rental income: This is generally subject to taxation and is not exempt.
Therefore, the exempt income in Ethiopia from the options listed is C. Medical treatment expenses for
employee.
66. What is the purpose of excise tax in Ethiopia?
A. To tax luxury items C. To prevent tax evasion
B. To raise income from imports D. To promote business growth
The correct answer is A
Taxing luxury items: Excise taxes are often applied to goods such as alcohol, tobacco, and luxury
vehicles, which are not necessities and are consumed by individuals with higher disposable incomes.
While excise taxes can also generate revenue for the government, their primary purpose is often to
discourage consumption of certain goods and to target luxury items.
67. Which of the following scenarios best illustrates tax evasion in Ethiopia?
A. A business reports income accurately and pays the due taxes
B. A taxpayer utilizes legal exemptions and deductions to reduce taxes
C. A company reports its profits but not its expenses
D. An individual underreports income to reduce their tax liability
The correct answer is D
Tax evasion refers to the illegal act of not reporting income, underreporting income, or inflating
deductions to reduce tax liability. It involves deliberately misrepresenting or concealing information to
avoid paying the correct amount of taxes owed.
A. A business reports income accurately and pays the due taxes: This scenario illustrates compliance with
tax laws, not evasion.
B. A taxpayer utilizes legal exemptions and deductions to reduce taxes: This is a legitimate tax planning
strategy and does not constitute tax evasion, as it involves using legal means to minimize tax liability.
C. A company reports its profits but not its expenses: While this may indicate some level of misreporting, it
does not specifically illustrate tax evasion as clearly as underreporting income.
D. An individual underreports income to reduce their tax liability: This scenario directly exemplifies tax
evasion, as it involves intentionally misrepresenting income to lower tax obligations.
Therefore, the scenario that best illustrates tax evasion in Ethiopia is D. An individual underreports
income to reduce their tax liability.
68. Which of the following statements best contrasts relative poverty with absolute poverty?
A. Absolute poverty is concerned with deprivation of basic needs, while relative poverty focuses on
inequality within a society or region
B. Relative poverty is more severe than absolute poverty
C. Absolute poverty affects people living in cities, while relative poverty affects rural populations
D. Both types of poverty refer only to economic deprivation
The correct answer is A
Absolute Poverty: This refers to a condition where individuals lack the basic necessities for survival, such
as food, clean water, shelter, and healthcare. It is measured against a fixed standard, often defined by a
specific income threshold (e.g., living on less than $1.90 a day).
Relative Poverty: This concept is concerned with the economic status of individuals in relation to the
wider society. It focuses on inequality and is defined in terms of the economic status of others in the same
society. For example, a person may be considered relatively poor if they earn significantly less than the
average income in their community, even if they can meet their basic needs.
69. Why do we need to measure poverty?
A. To eliminate all economic disparities
B. To keep poor people on the agenda, identify them, and evaluate interventions
C. To increase economic inequality D. To reduce government spending on social services
The correct answer is B
Measuring poverty is crucial for identifying and evaluating interventions because it helps target resources
effectively, ensuring that assistance reaches those in need. Additionally, it allows for monitoring progress
and assessing the impact of programs aimed at reducing poverty, ultimately guiding policy decisions and
improving outcomes
70. What is the Foster-Greer-Thorbecke (FGT) index used for?
A. To evaluate income inequality across a population
B. To calculate GDP growth
C. To understand the degree of income inequality among the poor
D. To measure the unemployment rate
The correct answer is C.
Explanation:
The Foster-Greer-Thorbecke (FGT) index is a family of poverty measures that is specifically designed to
assess the depth and severity of poverty within a population. It takes into account not only the proportion
of people who are below the poverty line but also how far below the poverty line they are. This allows for a
more nuanced understanding of poverty, including the degree of income inequality among the poor.
The FGT index can be adjusted to reflect different aspects of poverty:
P0 (Headcount Ratio): Measures the proportion of the population that is below the poverty line.
P1 (Poverty Gap Index): Measures the intensity of poverty by calculating the average shortfall of the
income of the poor from the poverty line, expressed as a proportion of the poverty line.
P2 (Squared Poverty Gap Index): Takes into account the severity of poverty by giving more weight to those
who are further below the poverty line.
71. If a country's poverty rate is measured using the headcount index, which of the following factors is most
likely to influence the result?
A. The total population size
B. The exact amount of income of all individuals
C. The percentage of the population living below the poverty line
D. The wealth distribution across the population
The correct answer is C.
The headcount index is a measure of poverty that specifically focuses on the proportion of the population that
falls below a defined poverty line. It is calculated by taking the number of individuals whose income is
below the poverty line and dividing it by the total population, often expressed as a percentage.
A. The total population size: While the total population size is a factor in calculating the headcount index
(since it is the denominator in the calculation), it does not directly influence the poverty rate itself. The
headcount index is concerned with the number of people below the poverty line relative to the total
population.
B. The exact amount of income of all individuals: The headcount index does not take into account the
exact income levels of individuals; it only considers whether individuals are above or below the poverty line.
C. The percentage of the population living below the poverty line: This is the primary factor that
influences the headcount index, as the index is defined by this percentage.
D. The wealth distribution across the population: While wealth distribution can impact poverty levels and
the overall understanding of poverty, the headcount index itself does not directly measure wealth
distribution; it simply counts those below the poverty line.
Therefore, the factor that most directly influences the result of a country's poverty rate when measured using
the headcount index is C. The percentage of the population living below the poverty line.
72. In a poverty measurement survey, if a person is found to have insufficient electricity and inadequate
sanitation, under which dimension would these deprivations be categorized?
A. Health C. Standard of living
B. Education D. Employment
The correct answer is C.
In poverty measurement surveys, deprivations related to basic services and infrastructure, such as
electricity and sanitation, are typically categorized under the dimension of standard of living. This
dimension encompasses various aspects of material well-being, including access to essential services,
housing quality, and living conditions
A. Health: This dimension focuses on health-related factors, such as nutrition, access to healthcare, and
health outcomes, rather than basic utilities like electricity and sanitation.
B. Education: This dimension pertains to access to education, literacy levels, and educational attainment,
which are not directly related to electricity or sanitation.
C. Standard of living: This dimension includes access to basic services and infrastructure, such as
electricity, clean water, sanitation, and adequate housing, making it the appropriate category for the
mentioned deprivations.
D. Employment: This dimension relates to job opportunities, income generation, and employment status,
which do not directly address issues of electricity and sanitation.
73. In Sen’s capability approach, what matters for determining poverty?
A. Only the amount of income a person has.
B. The amount of resources available in society.
C. The number of commodities a person consumes.
D. The person’s ability to achieve a set of functioning’s
The correct answer is D Amartya Sen's capability approach emphasizes that poverty should be
understood in terms of individuals' capabilities to achieve valuable functioning’s, rather than merely
focusing on income, resources, or consumption. Functioning’s refer to the various states of being and
activities that individuals value, such as being healthy, educated, and participating in social life.
74. What does the Lorenz curve represent?
A. The population's income growth over time C. The number of households in poverty
B. The share of income received by different income groups D. The relationship between wealth and health
The correct answer is B.
The Lorenz curve is a graphical representation used to illustrate the distribution of income or wealth
within a population. It shows the proportion of total income earned by cumulative percentages of the
population, allowing for a visual assessment of income inequality.
75. What is the role of quintiles or deciles in measuring income inequality?
A. To determine the share of income received by each income group
B. To break the population into equal income groups
C. To show the percentage of wealth held by the government
D. To track the poverty rate over time
The correct answer is A.
Quintiles and deciles are statistical tools used to analyze income distribution and measure income
inequality. They divide the population into equal parts based on income levels:
Quintiles: Divide the population into five equal groups, each representing 20% of the population. This
allows for the analysis of income shares among the lowest, middle, and highest income groups.
Deciles: Divide the population into ten equal groups, each representing 10% of the population. This
provides a more detailed view of income distribution and inequality.
By using quintiles or deciles, researchers can determine the share of total income received by each group,
which helps in understanding the extent of income inequality within a society.
76. What does a Gini coefficient of 0 represent?
A. Perfect inequality C. Perfect equality
B. The top 10% controls 90% of the income D. Complete poverty
The correct answer is C
The Gini coefficient is a measure of income inequality within a population, ranging from 0 to 1 (or 0 to
100 if expressed as a percentage).
 A Gini coefficient of 0 indicates perfect equality, meaning that everyone in the population has the
same income. In this scenario, there is no income inequality at all.
 Conversely, a Gini coefficient of 1 (or 100) would represent perfect inequality, where one individual
has all the income, and everyone else has none.
77. Which region experienced almost no rate reduction in poverty from 1950 to 2000?
A. Southeast Asia C. Sub-Saharan Africa
B. Latin America D. Eastern Europe
The correct answer is C
Sub-Saharan Africa experienced almost no rate reduction in poverty from 1950 to 2000. While other regions
made significant progress in reducing poverty, Sub-Saharan Africa showed limited improvement during that
period.

Conclusion: Sub-Saharan Africa stands out as the region with minimal progress in reducing poverty during
the specified timeframe, highlighting ongoing socio-economic challenges.
78. How can integrating women into development programs improve overall poverty alleviation?
A. By focusing only on male participation in economic growth
B. By ensuring women’s contributions to the economy and well-being of families
C. By limiting women's education to traditional roles
D. By restricting women's participation in formal-sector employment
The correct answer is B
Integrating women into development programs enhances poverty alleviation by promoting economic
empowerment and increasing household income. When women have access to resources, education, and
opportunities, they contribute significantly to economic growth and community well-being, leading to more
sustainable poverty reduction.
79. What strategy has Ethiopia adopted to combat poverty in alignment with the World Bank's
recommendations?
A. Structural Adjustment Programs (SAP) C. Millennium Development Goals (MDGs)
B. Financial Assistance Packages (FAP) D. Poverty Reduction Strategy Paper (PRSP)
The correct answer is D
Ethiopia has adopted a broad-based growth strategy focused on enhancing agricultural productivity and
employment to combat poverty. This approach aligns with World Bank recommendations by ensuring that
the benefits of growth are inclusive and reach vulnerable populations, aiming for sustainable and equitable
development.
80. How does indigenous knowledge contribute to poverty reduction in Ethiopia?
A. By utilizing locally available resources and social support systems
B. By providing formal financial services
C. By promoting large-scale industrialization
D. By encouraging the development of multinational corporations
The correct answer is A
Indigenous knowledge in Ethiopia plays a crucial role in poverty reduction by providing sustainable
agricultural practices, enhancing local decision-making, and fostering community resilience. It helps
identify effective strategies for resource management and supports social networks that empower
communities to collaborate and innovate.
Utilization of Local Resources
 Indigenous knowledge emphasizes the use of locally available resources, which can lead to more
sustainable agricultural practices.
 Communities leverage traditional methods that are well-suited to their specific environments,
enhancing food security and reducing dependency on external inputs.
Social Support Systems
 Indigenous practices often include strong social support networks that facilitate cooperation
among community members.
 These networks can provide assistance during times of crisis, helping to mitigate the impacts of
poverty and improve overall community resilience.
Empowerment and Decision-Making
 Local knowledge empowers communities to make informed decisions regarding their development
strategies.
 By involving community members in the planning and implementation of projects, indigenous
knowledge fosters a sense of ownership and accountability.
Sustainable Resource Management
 Indigenous practices often include sustainable resource management techniques that protect the
environment while providing for community needs.
 This approach not only helps in poverty alleviation but also contributes to the long-term
sustainability of natural resources.
Cultural Relevance
 Indigenous knowledge is culturally relevant and resonates with the values and traditions of the
community, making it more effective in addressing local challenges.
 This cultural alignment enhances community participation and commitment to poverty reduction
initiatives.
81. What was a major problem facing Ethiopia’s economy during the period of the first and second Five-
Year Plans that hindered sustainable growth during Monarchy?
A. Lack of a skilled labor force C. Poor land reforms and feudal land tenure system
B. Inadequate infrastructure in rural areas D. The absence of a formal banking system
The correct answer is C
During the period of the first and second Five-Year Plans in Ethiopia (1960s to early 1970s), the economy
faced significant challenges, primarily due to the feudal land tenure system. This system concentrated
land ownership in the hands of a few landlords, which hindered agricultural productivity and economic
development.
Poor Land Reforms: The lack of effective land reforms meant that the majority of the rural population,
who were tenant farmers, had little incentive to invest in land improvements or adopt modern agricultural
practices. This resulted in low agricultural productivity and limited economic growth.
Feudal Land Tenure System: The feudal system perpetuated inequality and poverty among the rural
population, as most farmers did not own the land they worked on and were subject to high rents and taxes.
This system stifled economic development and contributed to widespread poverty.
While other factors such as inadequate infrastructure and a lack of skilled labor also posed challenges,
the entrenched feudal land tenure system was a fundamental issue that significantly impeded sustainable
growth during the monarchy in Ethiopia.
82. Given the challenges faced during Ethiopia’s early development plans, what might have been a more
effective strategy for achieving sustained economic growth?
A. Focusing more on large-scale industrialization without considering agriculture
B. A more inclusive and decentralized approach to development that involved rural communities
C. Expanding foreign trade and investment without focusing on local development
D. Abandoning long-term development plans in favour of short-term economic relief
The correct answer is B
A more inclusive and decentralized approach to development would have been more effective for
achieving sustained economic growth in Ethiopia during the period of the first and second Five-Year
Plans for several reasons:
Empowerment of Local Communities: Involving rural communities in the development process would
empower them to take ownership of their economic activities, leading to more relevant and effective
solutions tailored to local needs.
Sustainable Agricultural Practices: Given that a significant portion of Ethiopia's economy is based on
agriculture, focusing on improving agricultural productivity through local knowledge and practices would
have been crucial. This could include better land reforms, access to resources, and training for farmers.
Decentralization of Resources: A decentralized approach would allow for more equitable distribution of
resources and investments, ensuring that rural areas receive the attention and support they need to
develop sustainably.
Social Cohesion and Stability: Engaging communities in the development process can foster social
cohesion and stability, reducing tensions that may arise from unequal development and resource
allocation.
Long-term Development Goals: An inclusive approach would align with long-term development goals,
ensuring that economic growth benefits all segments of the population, particularly marginalized groups.
In contrast, focusing solely on large-scale industrialization (A) or expanding foreign trade without local
development (C) could exacerbate inequalities and neglect the needs of the majority of the population.
Abandoning long-term plans for short-term relief (D) would likely lead to a lack of sustainable progress
and hinder the overall development trajectory. Therefore, an inclusive and decentralized approach would
have been a more effective strategy for sustained economic growth in Ethiopia.
83. What was the main objective of the Plan for Accelerated and Sustained Development to End Poverty
(PASDEP)?
A. To end hunger by 2020 C. To build more cities
B. To reduce inflation rates D. To accelerate economic growth and reduce poverty
The correct answer is D
Industrialization as a Growth Driver: Large-scale industrialization can create jobs, increase productivity,
and stimulate economic growth. In some contexts, prioritizing industrial development can lead to significant
advancements in infrastructure, technology, and overall economic diversification.
Economic Transformation: For countries like Ethiopia, transitioning from an agrarian economy to an
industrialized one can be a pathway to modernization and increased economic resilience. This approach can
attract foreign investment and enhance export capabilities.
Potential Risks: While focusing on industrialization can yield benefits, it is crucial to balance this with
agricultural development to ensure food security and support rural livelihoods. Ignoring agriculture could
lead to social and economic disparities.
If the emphasis is on the potential benefits of prioritizing industrialization during Ethiopia's early
development plans, then option A reflects a strategic choice aimed at transforming the economy. Thank you
for your input, and I appreciate the opportunity to clarify this topic!
84. How did the EPRDF government plan to boost agricultural productivity under ADLI?
A. By improving the use of fertilizers and seeds B. By focusing on the urban economy
C. By investing only in large-scale industries D. By focusing on international trade
85. In terms of macroeconomic stability, what did GTP I focus on?
A. Maintaining control over population growth B. Ensuring the sustainability of economic growth
C. Reducing GDP growth rates D. Privatizing state assets
86. What was the main reason for the imbalance between domestic savings and investment in Ethiopia
between 2010 and 2020?
A. Lack of foreign investment
B. Limited domestic savings to meet the increasing demand for investment
C. Government spending on consumer goods
D. High levels of unemployment
87. Which of the following would be the most effective strategy for Ethiopia to ensure structural economic
transformation by 2030?
A. Focusing solely on agricultural exports
B. Boosting manufacturing industries and industrial exports
C. Reducing foreign direct investment
D. Relying on foreign loans to finance development
88. What is the primary objective of Ethiopia’s home-grown economic reform (HGER)?
A. Increase external aid C. Sustain growth, stabilize macro-economy, and create jobs
B. Promote military spending D. Limit foreign investments
89. What is the purpose of Ethiopia's macroeconomic reforms in terms of fiscal policy?
A. To enhance tax collection and public expenditure management
B. To increase the country’s external debt
C. To limit government spending in all sectors
D. To decrease the role of the private sector in economic development
90. What was a major challenge identified in Ethiopia's economic growth between 2010 and 2020 that the
reforms aim to address?
A. Lack of available raw materials for manufacturing
B. Inflationary pressures and lack of adequate job creation
C. Over-reliance on the agricultural sector
D. Strong economic diversification
91. Which of the following describes fiscal decentralization?
A. The devolution of taxing and spending powers from central government to sub-national
governments
B. The increase of central government spending.
C. The equalization of taxes across all regions.
D. The nationalization of all fiscal powers.
92. How does decentralization potentially affect income redistribution programs?
A. It makes redistributing income more efficient across regions
B. It may lead to a tax base that is too small to fund redistributive programs
C. It increases the national government's capacity to redistribute income
D. It eliminates the need for redistributive programs
93. How does economic activity affect environmental resources?
A. It increases the supply of renewable resources
B. It can lead to environmental degradation and depletion of natural resources
C. It enhances the efficiency of natural ecosystems
D. It has no impact on environmental resources
94. Which of the following is a key implication of the "poverty-environment nexus"?
A. The poor are less affected by environmental degradation
B. Economic development always leads to environmental improvement
C. The poor contribute to and are also victims of environmental degradation
D. Economic development always improves the quality of natural resources
95. How does the "environmental Kuznets curve" relate to economic growth and environmental degradation?
A. It suggests that environmental degradation will continue to rise as income levels increase
B. It suggests that as income levels rise, pollution first increases and then decreases
C. It assumes that economic growth will not impact the environment
D. It predicts that poverty leads to a decrease in environmental pollution
96. What is the relationship between population growth and environmental degradation in rural areas?
A. Population growth leads to better environmental management
B. Population growth reduces pressure on natural resources
C. Population growth increases the demand for natural resources, contributing to environmental
degradation
D. Population growth has no impact on environmental conditions
97. Which of the following climate change adaptation strategies would best support food security in drought-
prone regions?
A. Introducing desalination plants to convert sea water into fresh water.
B. Developing drought-resistant crop varieties and improving irrigation.
C. Increasing deforestation to create more agricultural land.
D. Reducing food exports to conserve resources for local consumption.
98. What does the term "green economy" refer to?
A. An economy with high carbon emissions but rapid growth.
B. An economy focused on fossil fuel production and industrial expansion.
C. An economy based on agriculture and deforestation.
D. An economy that reduces environmental risks and promotes sustainable development
99. Why is the Green Legacy Initiative in Ethiopia significant in the fight against climate change?
A. It aims to curb deforestation and mitigate the effects of climate change through tree planting.
B. It focuses on industrial development.
C. It is solely focused on increasing agricultural productivity.
D. It promotes the use of fossil fuels in energy production.
100. What is an example of adaptation to climate change?
A. Implementing carbon taxes C. Constructing flood defenses in flood-prone areas
B. Shifting to renewable energy D. Reducing emissions from factories

THE END!!
COMPLIANED BY HABTAMU GENENE
12/04/2025