HARAMAYA UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF ECONOMIC
MOCK EXAMMINATION
Choose the best answer from the suggested options

Microeconomics
1. Which of the following is true about the stages of production?
A. Stage I is characterized by overexploitation of the fixed inputs
B. The problem in stage I is solved by reducing the variable inputs
C. Stage II is efficient because all are balanced
D. In stage III the contribution of the new employment (MPL) is positive
2. The law of diminishing marginal utility implies that the marginal utility of a good decreases
as;
A. A person consume more of it
B. A commodity is different
C. A person consume less of it
D. Time passes
3. Average variable cost approaches average total cost as output rises because:
A. Fixed costs are falling.
B. MC are above average variable costs
C. Total costs are falling.
D. Average fixed costs are failing.
4. All are true about consumer’s equilibrium except;
A. At equilibrium MRS equals the ration of price of commodities
B. At equilibrium the slope of the indifference curve is equal to the slope of budget line
C. Budget line is equal to indifference curve
D. None
5. In the long run, a firm in a monopolistically competitive market
A. Earns a normal profit
B. Produces at a minimum ATC

1
 C. Produces at full capacity
D. All
6. Which of the following has a constant return to scale characteristic?
A. Q=L2K2
B. Q=4L1/2K1/2
C. Q=5L1/2K1/3
D. Q=LK
7. Suppose the quantity demand of one individual increase from 150 to 450 when the price if the
commodity decrease from 30 to 20. What is the price elasticity of demand?
A. 3.2
B. 2.5
C. 1.6
D. None
8. Of the following one is true about the critique of Nash equilibrium
A. It may have two and above equilibrium points
B. It may have no equilibrium points
C. It doesn’t necessarily lead to pareto-efficient outcome
D. All
9. Which of the following statement is correct
A. The demand for labor under perfectly competitive market is MRPL
B. The demand for labor under monopoly market is MRPL
C. The demand for labor under monopsony market is VMPL
D. Individual supply curve for labor under perfectly competitive market is upward sloping
10. Which of the following is wrong about characteristics of oligopoly market structure
A. Few firms dominate the market each having different market share
B. Homogeneous /differentiated products
C. Mutual interdependence
D. Entry barriers
E. None

2
11. Which of the following can be a way of avoiding uncertainty that may arise from
interdependence of firms in oligopoly market
A. Entering in to collusive agreement
B. Adopt more strategic cooperation
C. Cartels
D. All
12. If oligopoly firms agree to share the market on quota and if their cost structure is different,
the best criterion to decide the quota is ______________
A. Based on Marginal cost level
B. Based on level of cost and bargaining skill
C. Based on geographical area
D. All
𝑄 0.8
13. Assume that a monopolistic competition market has demand function , P = 60 − and
𝑄 −0.2

total cost is TC = 2𝑄 2 + 100 then profit maximizing level of price is

A. 10
B. 12
C. 48
D. None
14. Based on information given on question #12, equilibrium quantity is
A. 10
B. 50
C. 60
D. None
15. Based on information given on question # 12 again, the total profit is
A. 200
B. 276
C. -240
D. None
16. Which condition/ conditions should be satisfied to say there is pareto- optimal according to
the pareto criterion of social welfare?
A. Exchange efficiency

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 B. Production efficiency
C. Product-mix efficiency
D. All
E. None

Macroeconomics
17. Which of the following is a macroeconomic issue?
A. The purchasing decisions that an individual consumer makes.
B. The effect of increasing the money supply on inflation.
C. The hiring decisions that a business makes.
D. The effect of an increase in the tax on cigarettes on cigarette sales.
18. ETHIOPIAN. Producers decide to produce more Agricultural Products and fewer Industrial
Products as the price of Agricultural Products in the international market rises. Producers are
answering the ________ part of one of economic decision.
A. ʺwhatʺ
B. ʺwhenʺ
C. ʺhowʺ
D. “For whom to produce”
19. When Ms AYSHA, makes the statement, ʺThe government should spend less money to take
care of national parks,ʺ she is
A. Making a normative statement.
B. Making a positive statement.
C. Testing an economic model.
D. Not dealing with scarcity.
20. Which school of Economics believes that government intervention through Fiscal policy is
necessary for efficient functioning of the nation
A. Classical
B. Monetarist
C. Keynesian
D. Mercantilist
21. A nation's gross domestic product (GDP):
A. Is the dollar value of the total output produced within the borders of the nation
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 B. Is the dollar value of the total output produced by its citizens, regardless of where they are
living
C. Monetary value of all goods and services, final and intermediate, produced in a specific
year.
D. Monetary value of all economic resources used in producing a year's output.
Use the following to answer questions 10-11:
Use the following table for a hypothetical Two-product economy.
Year Units of Orange Units of Banana Price of Orange Per unit Price of Banana Per unit

1 10 5 10 5

2 12 6 20 10

3 15 8 30 15

4 20 12 40 20
22. Refer to the above data. Find Nominal GDP and Real GDP in year 3 Respectively is:
A. BIR 570 and BIR 190.
B. BIR 570 and BIR 290.
C. BIR 190 and BIR 570.
D. BIR 570 and BIR 190.
23. Refer to the above data Inflation rate in year 3 is:
A. 70%.
B. 60%.
C. 40%. .
D. 90%
24. Which of the following activities is excluded from GDP, causing GDP to understate a nation's
well-being?
A. The child-care services provided by stay-at-home parents
B. The services of used-car dealers
C. The construction of new houses
D. Government expenditures on military equipment
25. The phase of the business cycle in which real GDP declines is called:
A. The peak.
B. A recovery.

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 C. A recession.
D. The trough.
26. Business cycle theory which states changes in aggregate spending is the cause of variations in
real GDP of an economy is known as:
A. The Keynesian theory
B. The monetarist theory
C. Rational expectation theory
D. Theory Political Business Cycle
27. Inflation means that:
A. All prices are rising, but at different rates.
B. All prices are rising suddenly.
C. Prices in the aggregate are rising
D. Real incomes are rising.
28. Business cycle theory which a fluctuation in the money stock is the cause of variations in real
GDP of an economy is known as:
A. Rational expectation theory
B. The monetarist theory
C. The Keynesian theory
D. Theory Political Business Cycle
29. The classical school is characterized by, EXCEPT
A. The market operates at full employment and any deviation from the market is adjusted by
government
B. Both fiscal policy and monetary policy are useless they do NOT affect the real economic
variables such as GDP
C. Self-interested economic behavior
D. Economic liberalism
30. Positive Output gap indicates that, EXCEPT
A. Under-employment
B. Overtime for workers
C. Actual output falls below the potential output
D. More utilization of the capacity of the machineries

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31. Which of the following items is included in measuring Gross Domestic Product
A. Underground Economy .
B. Intermediate Goods
C. Market Goods and Services
D. Non-productive transaction
32. Is the amount of income that is left for a person after payment of any taxes and transfers
A. Disposable income
B. National income
C. Personal income
D. Personal savings

Econometrics
33. Which of the following is the first step in empirical economic analysis?
A. Data collection
B. Statement of hypotheses
C. Specification of an econometric model
D. Testing of hypotheses
E. None of the above
34. Which one of the following assumptions cannot be violated by simple linear regression?
A. the assumption of heteroscedasticity
B. the assumption of multicollinearity
C. the assumption of no autocorrelation
D. None
Varieties of summary statistics were collected for a small sample (10) of of bivariate data, where
the dependent variable Y and an independent variable is denoted by X.
∑𝑿𝒊𝒀𝒊 = 45,975 ∑𝑿𝒊𝟐 = 64,150 ∑𝒙𝒊𝒚𝒊 = 1340
∑ 𝒙i𝟐= 1740 ∑ 𝒚i𝟐= 1552.5 𝑋̅= 79 ̅ = 56.5
𝒀
Based on the above data give the best answer for the following questions
35. Compute the sample correlation coefficient:
A. 0.8045
B. 0.8045

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 C. 0
D. None
36. The least squares estimate of 𝜷 equals
A. 0 .75
B. 0.77
C. 0.72
D. -.25
37. The residual sum of squares (RSS) equals
A. 1031.95
B. 505.98
C. 520.54
D. 928.02
38. The standard error of the coefficient equals
A. 0.193
B. 1.930
C. 15.48
D. -15.48
39. the calculated t value of the coefficient equals
A. 3.5
B. 3.98
C. 9.28
D. 3.32
40. Based on your regression result, which one of the following is correct
A. Both the intercept and the coefficient are statistically significant
B. Only the intercept is statistically significant
C. Only the coefficient is statistically significant
D. None
41. The estimator resulted from applying OLS to each simultaneous equation systems may be
A. Biased
B. Inconsistent
C. Unbiased

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 D. A and B
42. One of the following estimation techniques are important for fixed effects model.
A. least square dummy variable estimation
B. Generalized least square estimation.
C. Feasible GLS method
D. System GMM estimation.
43. Consider a linear probability model: owing house =-0.56+0.2income, this implies that

A. the probability of owing a house for individuals with zero income declines by 5.6%

B. the probability of owing house for individuals with zero income is zero

C. when income increase by 1birr, individual’s house increases by 0.2

D. all

44. Which of the following estimation techniques cannot be preferred for over-identified
simultaneous equations?

A. ILS
B. 2SLS
C. IV
D. all
45. One of the following statements is correct about probit and logit models
A. Marginal effect of a change in one of regressors is the estimate of parameters attached to
it
B. Probabilities lie between zero and one, and they use different methods of transforming the
model
C. The probit model is based on cumulative logistic function
D. Logit models result in a situation where too may observations fall at zero ad one
46. Suppose the following estimates of model Yit =β0 +β1xit +ηi +νit, then the class of the model is
A. An entity fixed effects model
B. A time fixed effects model
C. Radom effects modele
D. Time series model.

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47. Radom effects model may not be appropriate since
A. the number of parameters is large
B. it will not be valid if composite error term is correlated with one or more of the explanatory
variables
C. it cannot capture temporal variations In the dependent variables
D. All
48. Assume Di=1 if male

0, if female

The model is Salary= 8500 +20000sex, based on this analysis, the number 20000 is

A. the mean salary of female

B. the difference between mean salaries of male ad females
C. the mean salary of male
D. marginal effect

International economics
49. Import-substituting strategy of industrialization has been largely unsuccessful because of:
A. Import substitution industries remain inefficient and costly to operate.
B. Main beneficiaries of the import substitution process have been the foreign firms.
C. Import substitution made possible by the heavy and often government-subsidized
importation of capital goods and intermediate products.
D. Official exchange rates have frequently been intentionally overvalued in order to boost
local manufacturing by importing affordable capital and intermediate products, which in
turn raises the price of exports and lowers the price of imports in terms of the local
currency.
E. All of the above
50. Which of the following statements is correct?
A. An ad valorem tariff is expressed as a percentage of the value of the traded commodity.
B. A specific tariff is a % of the value of the unit.
C. An ad valorem tariff is a fixed sum per unit.

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 D. Countervailing tariffs is a tariff when country B will levy duties on goods imported from
country A since country A imposes duties against the products from country B.
E. All of the above.
51. The imposition of a tariff will:
A. Increase imports, decrease domestic production, and increase consumption.
B. Decrease imports, increase domestic production, and decrease consumption
C. Decrease imports, decrease domestic production, and increase consumption.
D. Increase imports, increase domestic production, and decrease consumption.
E. All of the above.
52. Term of trade (TOT) is:
A. How many units of a commodity exchanged for one unit of other commodity between
two country
B. The amount of a second commodity that must be given up to release just enough
resources to produce one additional unit of the first commodity
C. The amount of export for a nation
D. The amount of import for a nation
E. None of the above
53. Offer curve changes due to:
A. Taste
B. Income
C. Foreign price of the good
D. Cost condition
E. All of the above
54. Which of the following is not true with respect to exchange rate?
A. It is the price of one currency in terms of other
B. It is domestic currency units per unit of foreign currency
C. It is foreign currency units per unit of the domestic currency
D. The increase in exchange rate is a devaluation of the currencies
E. None of the above

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55. How would you participate in the foreign exchange market if you wish to travel to UK to visit
your relative who resides in UK?

A. Brokers
B. Retailer clients
C. Commercial banks
D. Central banks
E. None of the above
56. What are the major types of transactions or activities that result in supply of Japanese yen in
the two economies of world and Japanese yen/Euro spot foreign exchange market?
A. To import Japanese commodities
B. To make investments in Japan
C. To export Japanese commodities
D. To import commodities to Japan
E. All of the above

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57. A nation experiences internal balance if it achieves:
A. an equilibrium in the balance of payments
B. balance in the supply and demand for their currency
C. full employment and price stability
D. long-run economic growth and equitable income distribution
E. All of the above
58. Which policies are expenditure-changing policies?
A. Currency devaluation and revaluation
B. Currency appreciation and depreciation
C. Monetary and fiscal policy
D. Influence the composition of spending between domestic and foreign goods
E. All of the above
59. If there is perfect capital mobility in a small economy, monetary policy alone is effective at
influencing output under:
A. Floating exchange rate
B. Fixed exchange rate
C. Both floating and fixed exchange rate
D. Fixed exchange rate with monetary policy
E. None of the above
60. Under a system of fixed exchange rate and perfect capital mobility, which of the following
policy more effective at increasing output?
A. Expansionary fiscal policy
B. Contractionary fiscal policy
C. Expansionary monetary policy
D. Contractionary monetary policy
E. None of the above
61. Which one of the following shifts the BP curve to the left
A. autonomous decrease in imports
B. Appreciation of the exchange rate
C. An autonomous increase in export
D. Depreciation of the exchange rate

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 E. All of the above
62. Expansionary monetary policy results in which one of the following?
A. Improves the current account
B. Rise the domestic interest rate
C. Increase capital outflows
D. Decreases output
E. All of the above
63. Which one of the following is not an autonomous item in the balance of payment?
A. Export of goods
B. Investment abroad
C. Statistical error
D. Fall in reserves
E. All of the above
64. The BP curve shows
A. different combinations of interest rate and income those are compatible with
equilibrium in the balance of payment
B. different combinations of current account and capital account those are
compatible with equilibrium in the balance of payment
C. different combinations of interest rate and income for which the money supply
and money demand are balance
D. different combinations of interest rate and income that balance imports and
savings with exports, investment and government expenditure
E. All of the above
Mathematical Economics
dy
65. Given Y= √34 − 6x 2 , then =?
dx
1
A. −6x(34 − 6x 2 )−2
−6x
B. 1
(34−6x2 )2
−6x
C. √34−6x2

D. All

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 2
66. f(x) = ex , then fx, is?

2
A. 2xex lne
2
B. 2xex
2
C. 2xex ln2
D. A, and C
E. A, and B

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67. A firm knows that the demand function for its output is P = 400 − 0.5q. What price
should it charge to maximize sales revenue?
A. 200
B. 400
C. 250
D. None
68. For a production function Q(x), the maximum point at x=a is characterized as;
A. Q' (a)=0 and Q'' (a)<0
B. Q' (a)=0 and Q'' (a)>0
C. Q' (a)<0 and Q'' (a)<0
D. Q' (a)>0 and Q'' (a)=0
69. Which of the following system of equations shows functional dependence
A. y1 = 6x1 + 4x2
y2 = 7x1 + 9x2
B. y1 = x12 − 3x2 + 5
y2 = x14 − 6x12 x2 + 9x22
C. A and B
D. None
70. Which of the following represent first-degree differential equation?
dy 4
A. ( dt ) − 5t 5 = 0
4
d2 y dy
B. + ( dt ) + x 2 = 0
dt2

7 5
d2 y d3 y
C. ( dt2 ) + ( dt3 ) = 75y

D. none
71. A firm faces the production function Q = 12K 0.4 L0.4 and can buy the inputs K and L at
prices per unit of Birr 40 and Birr 5 respectively. If it has a budget of Birr 800 what
combination of K and L should it use in order to produce the maximum possible output?

16
 A. L=10 and K= 80
B. L=80 and K=10
C. L= 10 and K=40
D. None
72. The solution for an exact differential equation given by; (4y + 8t 2 )dy + (16yt − 3)dt = 0 is
A. 6y 2 + 7yt + 6y + c
B. t 3 + 4ty 3 + c
C. 3t 2 + 20ty 3 + c
D. None

Monetary Economics
73. Which of the following statement can explain the barter system?
A. Easily used as a store of wealth
B. It needs double coincidence of wants
C. Encourage specialization and division of labour
D. It condenses the transaction cost.
74. Which of the following is not the function of indirect finance
A. They discourage hoarding by bringing the savers and borrowers together
B. They help out the governments
C. They encourage the growth of the business sector by providing mortgage loans
D. They can uphold saving and investment habit among ordinary peoples
E. None
75. One the following is not the power and role of National bank of Ethiopia
A. Encourage the formation of micro and other financial institution and regulate their
activities.
B. Reduce the level of unemployment and maintenance of low level of inflation.
C. Conduct the supervision and follow up on the use of credits and loans provided to
customers
D. Provide direct advance to the government
E. None
76. Although the formal financial sectors are expanding in the country Ethiopia, there are different
kinds of bottlenecks for the development of the formal financial sector. Which of the following
is not the problem of the financial sector?
A. A good part of the economy is not yet monetized
B. Borrowers fail to repay back loans at the agreed time in the required amount
C. Lack of competition in the sector
D. Shortage of trained and efficient human recourse in the financial sector.
E. None
77. Assuming an economy with many commercial banks and a deposit-reserve ratio of 15%, if the
initial deposit of the whole economy made at the first commercial bank is birr 300,at the end
of the process the total money supply and the reserve of the banks, respectively, will be,
A. 1,000 and 100
B. 1,500 and 150
C. 2,000 and 300
D. 1,900 and 255
E. None
78. In the Ethiopian money market, the National bank of Ethiopia (NBE) has the monopoly power
in all of the following activities except,
A. Issuing of birr notes
B. Setting the interest rate paid for the depositors
C. Issuing of cheques
D. Setting the reserve deposit ratio
E. Licensing commercial banks
79. Money supply is positively related to
A. Change in Excess reserves-checkable deposits ratio
B. Change in discount loan
C. Changes in the required reserve ratio
D. Change in the currency-checkable deposits
80. The decrease in price level resulted in the
A. Decrease in real money supply.
B. Decrease in average interest rate.
 C. Reduction of unemployment.
D. Achievement of economic growth.

Developmental planning and project II

81. Project ideas at macro level can emanate from _________,
A. Shortage of essential raw materials constraining economic development.
B. Response of private sectors to government incentives.
C. Under- utilized natural resources of a country.
D. Bilateral agreements
82. Technical aspect of a projects identifies all but
A. Determination of suitable site for a project.
B. Identification of the cost of a project.
C. Preparing the time plan for the project.
D. None
83. Conducting economic analysis of a project is justified because
A. Accounting prices do not reflect the true value of a project.
B. Border prices are distorted due to government intervention in the international market.
C. Market prices are set based on willingness to pay.
D. None.
84. Which one of the following is true about shadow price?
A. It is measured by adjusting the accounting price of goods.
B. It is estimated for only those goods appearing in international market.
C. It reflects the increase in welfare due to one more unit of an output or input being available.
D. Shadow price can be estimated directly for all goods.
85. Monitoring and evaluation of a project is conducted due to all but
A. To construct the cost and benefit associated with a project.
B. To check whether projects are on the right truck.
C. To build capacity in M &E tools and techniques.
D. To assist in policy development and improvement.
86. Which one of the following is the difference between monitoring and evaluation?
A. Monitoring is a periodic exercise whereas evaluation is a continuous exercise.
 B. Evaluation tries to check whether a project is on the truck.
C. Evaluation identifies the sustainability of a project.
D. Monitoring has a broader scope to assess whether the project is on the right truck.
87. _______________method tries to identify impact of a project by collecting data outcome from
both participants and non-participants on their outcome before and after the intervention of the
project.
A. Randomized evaluations
B. propensity score matching
C. Instrumental variable methods
D. Double-difference methods
88. Which one is the best method to select between mutually exclusive projects?
A. ranking by inspection
B. Internal rate of return
C. Net present value
D. Urgency method

Development Economics
89. ___________________ is the situation of being unable or only barely able to meet basic needs.
A. Self esteem
B. Sustenance
C. Impoverish
D. Freedom from servitude
90. Disguised unemployment is a situation where:
A. people who are willing to work are unable to find jobs
B. people in the labor force hold two or more jobs
C. people are working full-time and hard, yet have a low marginal product
D. people work in a free labor market with a very low wage
91. According to Simon Kuznet, the relationship between GNP per capita and inequality in the
distribution of income can be expressed as:
A. a strictly decreasing relationship
B. a strictly increasing relationship
 C. no relationship
D. first increase and then decrease
92. The Gini coefficient provides a measure of:
A. the level of poverty
B. the level of relative inequality
C. disguised unemployment
D. the rate of growth
93. Balanced growth theories of Ragnar Nurkse advocate
A. a steady rate of growth of GNP
B. parity between capital stock and labor
C. simultaneous development in all sectors of the economy
D. mechanization of agriculture
94. The supply curve of labor to the industry is horizontal if there is surplus labor in agriculture.
This condition occurs as long as
A. the MPL in agriculture is less than the average product of labor.
B. the MPL in agriculture is zero.
C. the MPL in agriculture is less than the marginal product of labor in industry.
D. there are diminishing returns to labor in agriculture.
95. If Lorenz curves cross, we say there is less inequality in the case were
A. the poorer get a larger percentage of income
B. the poorer get a smaller percentage of income
C. the richer are less rich
D. we cannot say any
96. The greater the curvature of the Lorenz curve, the greater the relative degree of inequality.
A. True
B. False
97. All but one of the following are methods to represent overall income inequality:
A. Gini coefficient
B. The Ratio of the top income decile to the lowest income decile
C. Lorenz curve
D. GDP per capital
98. If the distribution of income for country X with a total population of six individuals is given
as (1, 1.5, 2, 3, 5, 5) and the poverty line is $1.9, the headcount measure tells us what percentage
of the population is in an absolute poverty situation
A. 10%
B. 1%
C. 26.67%
D. 33.33%
99. The endogenous growth model confirms the neoclassical model’s implications about
convergence.
A. True
B. False
100. The conjecture that inequality first increases with development, then decreases with further
development (known as the “inverted U hypothesis”) has been
A. strongly supported by most studies
B. supported mainly by cross-section, not time-series studies
C. supported mainly by time-series, not cross-section studies
D. generally repudiated by empirical studies
101. Economic growth in one area adversely affects the prosperity of another refers,
A. Spread effect
B. Backwash effect
C. trickle-down economics effect
D. pro-growth effects
102. Which of the following is not an element of the redistribution-with-growth policy
approach?
A. minimum wage legislation
B. land reform
C. progressive taxation
D. increased access to education
103. Which of the following does not constitute economic development in ‘the new view’?
A. Improvement in material welfare
B. Mere increase in the real GDP
 C. Quantitative and qualitative changes in life
D. Production and employment decisions open to all citizens
E. none of the above
104. One of the following is not considered as an element of poverty dimension according to
World Bank,
A. material deprivation
B. Vulnerability
C. empowerment
D. None of the above.