DEPARTMENT OF ECONOMICS, MTU

Mizan –Tepi University

College of business and Economics
Department of Economics
Economics pr-etest Exam for 4th Year regular student

Name:…………………………………………………… ID NO:……………………

General Instructions of the Exam!

 This pre test Exam is prepared by the Department of Economics to assist you in preparing for the exit exam.
 The Exam contains 141 multiple choice questions from courses that you have taken during your undergraduate
stay.
 Write your full name on the space given above and on the answer sheet.
 The exam booklet has 24 pages including the cover page and answer sheet.
 Switch off your mobile phone. Using a mobile phone for any purpose is strictly forbidden.
 Sharing calculators is not allowed.
 Do not mark any answer on the question paper. Put your answers on, the answer sheet only.

Part one: choose the Best answer among the given alternative
1. Which of the following statement best describe the law of diminishing Marginal return?
A. As extra units of a variable resource are added to a fixed resource, marginal product will decline beyond
some point.
B. Because of economies and diseconomies of scale a competitive firm's long-run average total cost curve will
be U-shaped.
C. The demand for goods produced by purely competitive industries is downward sloping.
D. Beyond some point the extra utility derived from additional units of a product will yield the consumer
smaller and smaller extra amounts of satisfaction.
2. According to Marshall, the law of diminishing marginal utility
A. applies on money in the manner in which it applies on commodity
B. do not applies on money except bank money
C. does not applies on bank money but applies on cash
D. applies on all commodities except money
3. which of the following is non-collusive oligopoly model
A. Kinked demand model

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B. Cournot’s duopoly model

C. Bertrand duopoly model
D. Stackelberg duopoly model
E. All of the above
4. Which of the following is non-price competition of Market Sharing Cartel
A. Member firm agrees on a common price at which they sell their output.
B. The price up on which they agreed set by the process of bargaining
C. firms compete to maximizing their profit by increasing their sell volume through different way like
quality, style, selling activities and advertising
D. None of the above
5. Economic cost include both
A. explicit cost and implicit cost
B. fixed cost and variable cost
C. explicit cost and prime cost
D. money cost and sunk cost
6. In which of the following situations will an increase in the money supply have no effect upon output?
A. LM is steeply sloped and IS steeply sloped
B. LM is vertical and IS steeply sloped
C. LM is steeply sloped and IS vertical
D. LM is relatively flat as is IS

7. The substitution effect indicates that:

A. a decline in money income will cause the consumer to buy more inferior goods and fewer superior goods
B. consumer equilibrium can only be achieved when the consumer is buying substitute goods
C. when the price of a product falls, the lower price will induce the consumer to buy more of that product at
the expense of other products
D. when the price of a product falls, a consumer will be able to buy more of it with a specific money income
8. Price discrimination refers to:
A. Selling a given product for different prices at two different points in time.
B. Any price above that which is equal to a minimum average total cost.
C. The selling of a given product at different prices that do not reflect cost differences.
D. the difference between the prices a purely competitive seller and a purely monopolistic
E. Seller would charge.
9. Which one of the following measures of poverty is used in empirical work because of its Sensitivity to the depth
and severity of poverty?
A. Total poverty gap
B. the Foster-Greer-Thornback index

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C. Head count
D. Average income shortfall
10. What does the slope coefficient in a simple regression model represent?
A. The change in the dependent variable for every one unit change in the independent variable
B. The change in the independent variable for every one unit change in the dependent variable
C. The correlation between the independent and dependent variables
D. The standard error of the estimate
11. Which one of the following factors would adversely affect economic growth?
A. Stable political environment
B. Technological innovation
C. Abundance of resources
D. Unstable general price level
12. Which of the following characteristics are most likely found in developing countries?
A. High population growth rates.
B. Large number of people living in poverty.
C. Very traditional methods of agricultural production.
D. all of the above
13. The low-income economies generally have the following except
A. Deficient infrastructures.
B. Low life expectancies.
C. Low savings.
D. a per capita GNP of more than $900.
14. Which of the following is not TRUE about education in LDCs?
A. Public expenditure per student for higher education is about ten times as high as for primary education.
B. The expansion of primary education redistributes benefits from the rich to the poor.
C. Economists unanimously agree that LDCs should put greater priority on primary education.
D. Boys are sent to school far more often than girls.
15. The emigration of highly-skilled people from the developing countries is known as
A. The brain drain.
B. Human capital deterioration.
C. Productivity.
D. Labor degradation.
16. Which of the following is not a possible cost of high fertility rates and rapid population growth?
A. Increasing returns to natural resources, with a direct impact on average food consumption.
B. Increased urbanization and congestion.
C. Higher labor force growth rate and higher unemployment.
D. Working population that must support a larger number of dependents.

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17. Which of the following is the correct description between CPI and the GDP Deflator
A. GDP deflator measures the prices of all goods and services produced. Whereas, the CPI measures the
prices of only the goods and services bought by consumers
B. The CPI assigns fixed weights to the prices of different goods, whereas the GDP deflator assigns
changing weights
C. GDP deflator includes only those goods produced domestically. Imported goods are not part of GDP and
do not show up in the GDP deflator.
D. All of the above
18. Which one of the following is correct about Rostow's economic stages?
A. The preconditions for take-off the takeoff the drive to maturity the age of creative destruction.
B. The traditional society the preconditions for takeoff the takeoff the drive to maturity the age
of high mass consumption.
C. The preconditions for consumption the replication the drive to maturity the age of high mass
consumption.
D. The learning curve the age of high mass consumptions’ -takeoff he drives to maturity.
19. Which of the following is a symptom of heteroscedasticity?
A. Residuals are normally distributed
B. Residuals have a constant variance
C. Residuals have a non-constant variance
D. Residuals are perfectly correlated with the dependent variable
20. Which of the following is a common method for detecting multicollinearity in regression analysis?
A. T-test B. F-test C. VIF (Variance Inflation Factor) E. ANOVA
21. What is the difference between logistic regression and linear regression?
A. Logistic regression is used for limited dependent variables while linear regression is used for continuous
dependent variables.
B. Logistic regression assumes a linear relationship between the independent and dependent variables
while linear regression does not.
C. Logistic regression estimates probabilities while linear regression estimates means.
D. Logistic regression requires the use of dummy variables while linear regression does not.
22. Suppose you have a system of two equations with two endogenous variables and one exogenous variable.
Which method would you use to estimate this model?
A. Two-stage least squares
B. Ordinary least squares
C. Three-stage least squares
D. Maximum likelihood estimation
23. Which one of the following best describes the relationship between supply of educational

Quality, educational quantity, and employment in developing countries

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A. Demand for education and employment is economically motivated while supplies of

Education is politically responsive

B. Market supply of education is led by market demand for education

C. Economically motivated supply of education faces politically responsive demand for Education
D. Market demand for education is led by market supply of education
24. According to the traditional approach to economic development, which one of the following is an important
factor of long-term growth?
A. Population growth and labour force
B. Capital Accumulation
C. Technological Progress
D. All of the above
25. Which one of the following is not true about Adam Smith’s Theory of Absolute Advantage?
A. Adam Smith started with the simple truth that for two nations to trade with each other voluntarily,
both nations must gain.
B. According to Adam Smith, trade between two nations is based on absolute advantage.
C. According to Adam Smith, both trading nations can gain by each specializing in the production of the
commodity of its absolute advantage and exchanging part of its output with the other nation for the
commodity of its absolute disadvantage.
D. Adam Smith’s theory of Absolute Advantage assumes increase returns to scale in the production of
both goods in the two countries.
26. Which trade policy promotes minimal government intervention and emphasizes free trade?
A. Protectionism
B. Import substitution
C. Export promotion
D. Free trade
27. Which organization is responsible for enforcing trade rules and settling disputes between member countries?
A. International Monetary Fund (IMF)
B. World Trade Organization (WTO)
C. World Bank Group
D. d) United Nations Conference on Trade and Development (UNCTAD)
28. What is autocorrelation in time series analysis?
A. The correlation between two different time series variables
B. The correlation between an observation and its lagged values
C. The correlation between an observation and its forecasted values
D. The correlation between two different cross-sectional units
29. Which of the following is an example of a tariff?

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A. A tax on imported goods

B. A tax on exported goods
C. A tax on all goods
D. A tax on luxury goods
30. Which international trade theory emphasizes the role of factor endowments, such as labor and natural resources,
in determining a country's comparative advantage?
A. Absolute advantage theory
B. Comparative advantage theory
C. Factor endowment theory
D. Product life cycle theory
E. All of the above
31. Which of the following best describes the gold standard?
A. An international agreement to fix exchange rates between countries
B. The use of gold as a universal medium of exchange
C. A monetary system in which a country's currency is pegged to a specific amount of gold
D. An international organization that oversees monetary policy
32. One of the following statements is not true about mercantilist trade theory
A. According to the mercantilists, the central question was how a nation could regulate its domestic and
international affairs to promote its own interests.
B. To promote a favourable trade balance, the mercantilists advocated the principle of laissez-faire, laissez-
passer’.
C. Tariffs, quotas, and other commercial policies were proposed by the mercantilists to minimize imports in
order to protect a nation’s trade position
D. Although the foundations of mercantilism have been disproved, mercantilism is alive today.
33. The Heckscher-Ohlin trade theory argues that
A. International differences in labor, labor skills, physical capital or land (factors of production) create
productive differences that explain why trade occurs.
B. The Ricardian model show how trade affect the income distribution
C. Trade arise by the interaction between differences in factor endowments across countries and differences
in factor intensities across industries
D. While trade is partly explained by differences in labor productivity, it also can be explained by differences
in resources across countries.
34. Speculative demand for money arises due to___________________.
A. Uncertainties about the future rate of interest
B. opinion similarities between individuals about the future rate of interest
C. opinion differences between individuals about the future rate of interest
D. the existence of bond market

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E. A and D
35. Dummy variables are used to include _______ into a regression model.
A. Count data variables
B. Categorical variables
C. Continuous variables
D. Time series variables
36. If a Durbin Watson statistic takes a value close to zero, what will be the value of the first order autocorrelation
coefficient?
A. Close to minus one
B. Close to zero
C. Less than zero
D. Close to plus one
37. One of the following statements is NOT true about the Probit model?
A. Significance of single coefficient can be tested using t-test
B. It is possible to estimate the Probit model using maximum likelihood technique
C. It is possible to estimate the Probit model using OLS
D. Coefficient of determination has no usual interpretation
38. For a stationary autoregressive process, the effects of shocks will
A. Persist indefinitely
B. Eventually die out
C. Neither persist nor die out
D. Exponentially grow
39. A spurious regression refers to a situation where:
A. The relationship between dependent and independent variable is exact
B. Even if two variables with unit root are independent, regressing one variable over the other Results in
statistically significant relationship.
C. Both the dependent and independent variables are stationary at level
D. Only dependent or independent variable has unit root
40. If two variables, Xt and yt are cointegrated, which of the following statements is true?
A. Either xt or yt must be stationary at level
B. Only one linear combination of Xt and yt will be stationary at first difference
C. The residuals from a regression of yt on Xt must be stationary at level
D. Only Xt will be stationary at level
41. Which test a researcher should conduct to choose between a fixed effects and a random effects model?
A. Chi-square
B. Hausman’s test
C. LM-test

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D. F-test
42. What is the difference between a fixed exchange rate and a floating exchange rate?
A. A fixed exchange rate is set by the market, while a floating exchange rate is set by governments.
B. A fixed exchange rate is determined by supply and demand, while a floating exchange rate is set by central
banks.
C. A fixed exchange rate is set by international agreement, while a floating exchange rate is determined by
market forces.
D. A fixed exchange rate is determined by the value of a country's gold reserves, while a floating
E. Exchange rate is determined by the value of its currency on the open market.
43. What is the purpose of Special Drawing Rights (SDRs) in the international monetary system?
A. To provide a reserve currency for member countries
B. To promote free trade among member countries
C. To regulate international capital flows
D. To provide short-term loans to developing countries
44. Which of the following organizations is responsible for the International Monetary System?
A. The World Trade Organization (WTO)
B. The International Monetary Fund (IMF)
C. The International Bank for Reconstruction and Development (IBRD)
D. The United Nations (UN)
45. Which one of the following best define balance of payments?
A. A record of all the financial transactions that take place between a country and the rest of the world
B. A record of all the imports and exports of a country
C. A record of all the loans that a country has received from other countries
D. None of the above
46. Which one of the following is not an instrument to carry out monetary policy?
A. Open market operations
B. Changes in the discount rate
C. Change in reserve requirements
D. Government expenditure
47. The type of unemployment which occurs when there is a mismatch between jobs available and skill of job
seekers is:
A. Structural unemployment
B. Frictional unemployment
C. Seasonal unemployment
D. Cyclical unemployment
48. In macroeconomic policy, the time it takes for policy makers to check whether problem occurs in the economy
is;

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A. Impact lag
B. Recognition lag
C. Political lag
D. Implementation lag
49. Which of the following NOT true regarding the Harrod - Domar model of economic growth?
A. To grow fast, economies should save and invest certain proportion of their national income
B. Countries with higher rate of saving will grow faster than otherwise
C. The lower the capital output ratio, the lower the rate of economic growth will be
D. The lower the capital-output ratio, the higher will be the growth of the economy
50. Suppose that a hypothetical developing economy has capital output ratio (k = 5%) and its yearly savings rate is
15 % of GDP, then the growth rate of this economy will be;
A. A. 0.33 % per year
B. 3 % per year
C. 5 % per year
D. 15 % per year
51. Which one of the following is an example of impact lag of macroeconomic policy?
A. The government decides to increase spending to stimulate the economy
B. The government announces a tax cut to boost consumer spending
C. The government realizes that the economy is in recession
D. The government decides to raise interest rate to combat inflation
52. One among the following statement is wrong about the law of comparative advantage and gain from trade
A. According to the law of comparative advantage, even if one nation is less efficient than the other nation in
the production of both commodities, there is still a basis for mutually beneficial trade.
B. The first nation should specialize in the production and export of the commodity in which its absolute
advantage is greater, and the other nation should import the commodity in which its absolute advantage is
smaller.
C. Consumption gains to the two trading countries depend upon the terms of trade (TOT)
D. If terms of trade (TOT) of country A is equal to internal opportunity cost ratio of country
53. Which one of the following statements is TRUE about a foreign exchange market?
A. foreign exchange market is a part of the financial market for the buying and selling of long – term debt
B. A foreign exchange market is a part of the financial market for the buying and selling of short – term debt
C. A foreign exchange market is the market for the buying and selling of foreign currencies
D. foreign exchange market is the market for the buying and selling of foreign goods and services
54. Which one of the following is correct, other things being constant, real effective exchange rate?
A. The real effective exchange rate measures the weighted average of a country’s currency in relation to a
basket of other major currencies

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B. The real effective exchange rate measures the weighted average of a country’s export and import prices in
relation to a basket of other countries’ export and import prices
C. The real effective exchange rate measures the responsiveness of export prices to changes in exchange rates.
D. The real effective exchange rate measures the responsiveness of import prices to changes in exchange rates
55. Assume that the United States of America (USA) and the United Kingdom (UK) are trading partners. Let the
USA be the domestic partner, while the UK is the foreign partner. Other things being equal, what does an
increase in the real exchange rate imply?
A. The USA has become more competitive than the UK
B. The USA has become less competitive than the UK
C. USA goods and services have become more attractive to UK consumers and businesses
D. UK goods and services have become less attractive to USA consumers and businesses
56. Liquidity trap along the liquidity preference curve refers to the region where
A. monetary policy becomes effective
B. monetary policy fails
C. money demand becomes interest sensitive
D. money demand becomes price sensitive
57. Speculative demand for money arises due to which one of the following?
A. . uncertainties about the future rate of interest
B. opinion similarities between individuals about the future rate of interest
C. opinion differences between individuals about the future rate of interest the existence of bond market
D. All of the above
58. Which of the following measurement about Gini coefficients(GC) is mismatched
A. perfect equality = 1
B. perfect inequality = 0
C. highly unequal income distribution = 0.20 to 0.35
D. Relatively equitable distributions = 0.50 and 0.70
E. None of the above
59. Which of the following statement about Lorenz curve is correct
A. The greater the degree of inequality, the greater the bend and away from the bottom horizontal axis the
Lorenz curve will be.
B. The more the Lorenz line curves is closer to the diagonal (perfect equality), the greater the degree of
equality represented.
C. The more the Lorenz line curves is away from the diagonal (perfect equality), the greater the degree of
inequality represented.
D. All of the above
60. Which of the following is TRUE about the relationship between currency ration, reserve ratio and money
supply?

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A. Higher currency ratio, c, and reserve ratio, r, lead to higher money supply for a given level of monetary
base.
B. Lower currency ratio, c, and reserve ratio, r, lead to lower money supply for a given level of monetary base
C. higher currency ratio, c, and reserve ratio, r, lead to lower money supply for a given level of monetary base
D. higher currency ratio, c, and reserve ratio, r, does not lead to change in supply for a given level of monetary
base
61. Which of the following is the principal objective of the monetary policy of the National Bank of Ethiopia?
A. Maintain price & exchange rate stability and support sustainable economic growth of Ethiopia.
B. Expand education in Ethiopia
C. Improve productivity of firms
D. Expand supply of electricity in Ethiopia
62. The following are potential remedial measure of heteroscedasticity in classical linear regression models except
A. Transformation of variables into natural logarithm
B. Running Cochrane-Or cut regression
C. Transforming the Ordinary Least Square into Generalized Least Square model
D. Running robust regression
63. Which of the following is true about economic development?
A. It can only be achieved through economic growth.
B. It is not possible without political stability.
C. It is a process that takes place over time.
D. It is a static concept that does not change over time
64. Which of the following is a common feature of developing countries?
A. High levels of economic growth
B. High levels of education
C. Low levels of income per capita
D. Low levels of inequality
65. Which of the following is a common challenge faced by developing countries?
A. High levels of political stability
B. High levels of income per capita
C. Access to advanced technology
D. Limited access to education and healthcare
66. Which of the following is a key feature of the Solow model of economic growth?
A. Technological progress is the main driver of economic growth
B. Savings and investments are the main drivers of economic growth
C. Human capital development is the main driver of economic growth
D. Trade openness is the main driver of economic growth

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67. Which of the following is a key feature of the Harrod-Domar model of economic growth? A. Savings and
investments are the main drivers of economic growth
B. Technological progress is the main driver of economic growth
C. Human capital development is the main driver of economic growth
D. Trade openness is the main driver of economic growth
68. One of the following statements is NOT true about the probit model?
A. Significance of single coefficient can be tested using t-test
B. It is possible to estimate the Probit model using maximum likelihood technique
C. It is possible to estimate the Probit model using OLS
D. Coefficient of determination has no usual interpretation
69. Consider an open economy given by the following expressions: C = 10 + 0.8 (Y – T), I = 10, G = 10, T = 10,
IM = 0.3Y and X = 0.3Y. Assume the real exchange rate is fixed and equal to 1. What is the government
purchase multiplier in this economy, given Y
A. 1 B. 2 C. 3 D. 4
70. When money demand is expressed in a graph with the interest rate on the vertical axis and the quantity of
money on the horizontal axis, an increase in the interest rate
A. Decreases the quantity demanded of money.
B. Increases the quantity demanded of money.
C. Decreases the demand for money.
D. Increases the demand for money.
71. The long-run effect of an increase in the money supply is to
A. Increase the interest rate
B. Decrease the price level.
C. Increase the price level.
D. Decrease the interest rate.
72. Suppose the government increases its purchases by £16 billion. If the multiplier effect exceeds the crowding-
out effect, then
A. The aggregate supply curve shifts to the right by more than £16 billion.
B. The aggregate demand curve shifts to the left by more than £16 billion.
C. The aggregate demand curve shifts to the right by more than £16 billion.
D. The aggregate supply curve shifts to the left by more than £16 billion.
73. According to the interest rate effect, aggregate demand slopes downward (negatively) because
A. Lower prices increase money holdings, decrease lending, interest rates rise, and investment spending falls.
B. Lower prices increase the value of money holdings and consumer spending increases.
C. Lower prices decrease the value of money holdings and consumer spending decreases.
D. Lower prices reduce money holdings, increase lending, interest rates fall, and investment spending
increases.

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74. Which of the following would not cause a shift in the long-run aggregate supply curve?
A. An increase in the available capital
B. An increase in the available labor
C. An increase in the available technology
D. An increase in price expectations
75. Which of the following is not a reason why the aggregate demand curve slopes downward?
A. The exchange-rate effect
B. The wealth effect.
C. The classical dichotomy/monetary neutrality effects.
D. The interest-rate effect
76. The curve which relates the level of income with the rate of interest which is determined by money- market
equilibrium corresponding to different levels of demand for money is known as-
A. IS curve B. LM curve C. Income curve D. price consummation curve
77. Which of the following is the correct definition of the IS curve?
A. IS curve represents the single level of output where financial markets are in equilibrium.
B. IS curve represents the combinations of output and the interest rate where the money market is in
equilibrium.
C. IS curve represents the single level of output where the goods market is in equilibrium.
D. IS curve represents the combinations of output and the interest rate where the goods market is in
equilibrium.
78. When rate of interest falls, the level of investment will be:

A. Increase B. Decrease C. No effect on investment D. Both a & b

79. Who developed the concept of IS- LM model?

A. Hicks and Hansen B. J. M. Keynes C. Adam Smith D. None of the above.

80. A policy of no restrictions on the movement of goods between countries is known as

A. policy of free trade
B. Protectionism policy
C. Key Industry Argument
D. All of the above
81. Which of the following tariffs can be levied on goods like wheat, sugar, coffee, cattle, etc?
A. Ad valorem tariffs
B. Compound tariff:
C. Specific tariffs
D. Revenue tariffs

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82. Suppose that country A imposes (increases) duties against the products from country B, due to this country B
also retaliate and charge duties on goods imported from country A. Thus, country B’s tariffs are then described
as.
A. Retaliatory tariffs.
B. Protective tariffs
C. Non-discriminatory tariffs
D. Discriminatory tariff
83. Which type of tariff combines both specific duty with an ad valorem duty
A. Ad valorem tariffs
B. Compound tariff:
C. Specific tariffs
D. Discriminatory tariffs
84. Which of the following is a key challenge facing developing countries in adopting the structuralism approach to
economic development?
A. Limited access to foreign investment
B. Limited access to technology and innovation
C. Weak institutions and governance structures
D. . Limited access to international markets
85. Which of the following is a key feature of the Human Development Index (HDI)?
A. Measures economic growth and output per capita
B. Measures social and environmental sustainability
C. Measures income and wealth inequality
D. Measures human development outcomes such as education and health
86. Which of the following is a key feature of the Multidimensional
Poverty Index (MPI)?
A. Measures economic growth and output per capita
B. Measures social and environmental sustainability
C. Measures income and wealth inequality
D. Measures multiple dimensions of poverty such as health, education, and living standards
87. Which of the following is a key goal of industrial policy?
A. To promote free market competition
B. To reduce government intervention in the economy
C. To promote the growth of specific industries
D. To reduce income inequality
88. Which of the following is a potential negative consequence of foreign debt?
A. Increased government spending on social services
B. Increased government revenue

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C. Reduced economic growth

D. Improved access to healthcare

89. Which of the following is a key feature of the endogenous growth theory?
A. Savings and investments are the main drivers of economic growth
B. Technological progress is the main driver of economic growth
C. Human capital development is the main driver of economic growth
D. Trade openness is the main driver of economic growth
90. In indifference curve analysis, the budget line will become steeper if the .
A. price of the good along the vertical axis increases
B. income of the consumer decreases
C. indifference curve moves to the left
D. indifference curve moves to the right
91. For indifference map, the highest level of total utility is given by .
A. the point which is furthest down along a given indifference curve
B. the indifference curve which lies furthest away from the origin
C. the point which is furthest up along a given indifference curve
D. the indifference curve which lies closest to the origin
92. Answer the following questions based on the graph below

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The consumer equilibrium is observed to be .

A. point D
B. point B
C. point A
D. point E
93. Given the budget line AB, the highest level of total utility attainable is .
A. indifference curve u2
B. indifference curve u3
C. point B
D. indifference curve u1

94. Given the budget line AB, if the consumer was at point D, the consumer should .
A. do nothing as the consumer is at equilibrium
B. purchase more bananas and fewer oranges
C. purchase more of both bananas and oranges
D. Purchase more oranges and fewer bananas
95. The consumer's budget line is constructed under the assumption that
A. diminishing marginal utility has not been encountered by the consumer
B. the consumer's income is fixed and that the prices are fixed
C. diminishing marginal utility has been encountered by the consumer
D. the consumer knows what his/her neighbors will do
96. The income effect indicates that
A. a rise in money income will cause consumers to buy smaller quantities of normal goods
B. when the price of a product falls, the lower price will induce the consumer to buy more of that product
now that it is relatively cheaper
C. consumers should substitute among various products until the marginal utility from the last unit of each
product purchased is the same
D. when the price of a product falls, a consumer will be able to buy more of it with a specific money income
97. If the price of normal good X rises, the income
A. and substitution effects will both induce the consumer to buy less of X
B. and substitution effects will both induce the consumer to buy more of X
C. effect will induce the consumer to buy more of X and the substitution effect will induce him to buy less
D. effect will induce the consumer to buy less of X and the substitution will induce him to buy more
98. Which of the following is correct? When the price of normal good Z falls:
A. Both income and substitution effects cause the consumer to buy more.
B. Both income and substitution effects cause the consumer to buy less.

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C. The income effect causes the consumer to buy less, but the substitution effect causes her to buy more.
D. The income effect causes the consumer to buy more, but the substitution effect causes her to buy less.
99. From given alternatives one is not necessary conditions for take-off defined by Rostow?
A. A rise in the rate of productive investment.
B. Development of substantial manufacturing sector.
C. Institutional framework in fostering economic development.
D. Limited production and backward technology.
100. Among the common features of the developing countries one often play large role in the success or failure of
development efforts.
A. Nature of its industrial structure
B. Ethnicity and religion
C. Degree of dependency
D. Public and private ownership and use of resources
101. One of the following is final and very convenient short hand summary measure of the relative degree of income
inequality in a country?
A. Lorenz curve
B. Purchasing purity curve
C. Gross domestic product
D. Gini coefficient
102. The followings are reason for the sudden change in overall population trends whether up or down, except?
A. Famine
B. Disease
C. War
D. Climate
103. According to Nobel laureates Simon Kuznets all are contribution of agriculture to economic development
except?
A. Product contribution
B. Foreign-exchange contribution
C. Market contribution
D. Exchange rate contribution
104. Economists define it as any flow of capital to developing country with objective of noncommercial from view
of donor is,
A. Nonprofit fund
B. Foreign aid

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C. International trade relation

D. Commodity aid
105. The term economists often use for education, health, and other human capacities that can raise productivity
when increased.
A. Natural resources
B. Human capital
C. Capital accumulation
D. Innovation
106. Among the following, one favors same groups of people in society and further increase economic inequality?
A. Social process
B. Personal preferences
C. Physical attributes
D. Public policy
107. Which one of the following statement is False about optimization of non-linear programming according to the
Kuhn – Tucker?

A. The first order condition should be similar like classical programming.

B. We optimize the objective function with non-negativity constraints.
C. For maximization case, the second order derivative of a given function must be positive.
D. Second order condition for minimization should be greater than or equals to zero.
108. For the function , what is the profit maximizing level of output (Q) and
maximum amount of profit respectively?
A. 80 and 740
B. 8 and 740
C. 740 and 8
D. None
109. Suppose the firm faces a demand function for its product and the firm’s costs of production and
marketing are ( ) . depending up on this information. Which one of the following outputs maximizes
the firm’s total revenue and what is the value of price that maximizes the firm’s total revenue respectively?
A. 4 and 16 C. 4 and 24
B. 16 and 4 D. 8 and 16.

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110. A consumer’s Utility function is given by: U (x, y) = if the consumers income is Birr 500 and the
price of x is Birr 4 per unit and the price of y is Birr 8 per units. What is the utility maximizing level of X and
Y?
A. (62.5, 31.25) B. (31, 62) C. (31.5, 62.5) D. (30, 60)
111. Based on above question #70, what is the MRTSXY at equilibrium level?

A. B. 1 C. -1 D.

112. Based on above question # 70, what is the maximum utility level of the utility function?
A. 820.8 B. 388.8 C. 887.8 D. 380.5

Qd  1  1 P
113. Given the demand and supply function for particular product
Qs   2   2 P where α1, β1, β2, α2 are
parameter of the mode. Given the above information what will be equilibrium quantity (q) is____

 2  B1  ( 2  2  1 2 )
A.
1   2 C.
( 1   2 ) 2

(1 2  a 2 2 ) 2
B.
(1   2 ) D.
1   2
Qd  1  1 P
114. Given the demand and supply function for the particular product
Qs   2   2 P where , β1 ,β2, α2 are
parameter of the model. What is the effect of change in β2 upon equilibrium price?

1  ( 1   2 ) 2  ( 2  2   1  2 )
A.
1   2 B.
( 1   2 ) 2 C.
1   2 D.
( 1   2 ) 2

To answer questions 75- 76 using the following given the following national income model,

Y = C+ I 0 + G 0 C = 50 + 0.8 (Y-T) T = 40 + 0.5Y I 0 =10 G 0 = 15

115. According to above information change equilibrium national income (  ) will be_____?
A. 71.66 C. 46.66
B. 88.33 D. 138.33

116. According to above information change equilibrium consumption ( C ) will be________?

A. 64.65 C. 115.5
B. 90.52 D. 45.83

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117. What is the first derivative of function ( ) ( ) ?

A. ( ) C. 4( )

B. ( ) D. ( )

118. Suppose total revenue for a commodity is function of commodity sold and given by ( ) – . What is the
marginal revenue when 50 units are sold?
A. 386 unit C. 398 unit
B. 302 unit D. 396 unit
119. Which one of the following has no unique solution?
A. =3 +2 C. =3 +2
=4 +4 =3 +2
= 4 +4
=5 +4 D. None
120. Given the following optimization function
L= + +4 + + +2
What is the optimum value of , and that maximize the objective function respectively?
A. (1, 14 and 9) C. ( 0 , 0 and 0)
B. ( 0 , 51 and 2 ) D. ( 2, 7 and 0)
121. Based on the above question number # 15 what is the value of Hessian determinants (H1, H2 and H3).
Respectively
A. (31, 4 and 54) C (4, 31 and 54)
B. (54, 4 and 32) D (45, 23 and 14)

122. What is of function ( )?

A. C. ( )

B. D.
( ) ( )

123. If is defined by ( ) ( ) then what is ( )

A. 2
B. -2
C.
D.
124. What is the rate of change function ( )
A.

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B.
C. ( )
D. ( )
125. Consider the following ECM Model:    Then which of the following statement is true
about the adjustment process to the equilibrium position of the model?
A) If the equilibrium error term ( ) is positive, is above its equilibrium value of (  ).

B) If the equilibrium error term ( ) is negative, is below its equilibrium value of (  ).

C) The coefficient of equilibrium error term ( )  decides how quickly the equilibrium is restored.

D) All are true

126. Which of the following statement is true?
A) Augmented Dickey Fuller(ADF) test is a procedure used to determine the existence of long run relationship
among the variables in the model.
B) In the procedure of Dickey and Fuller test, the serial correlation could be avoided by incorporating the lagged
differenced regressand as regressor.
C) Engle and Granger test is used to determine the assertion of causality and its direction of movement among the
economic variables
D) Phillips and Perron test is used to judge the existence cointegration among the economic variable included in
the model
127. When the assumption of zero conditional mean of error term is violated in the OLS regression method, as a result which
of the following would happen on the OLS estimator
(( ) (( )
A) ( ̂ ) ( ) ( )

(( ) (( )
B) ( ̂ ) ( ) ( )

(( ) (( )
C) ( ̂ ) ( ) ( )

D) All
128. Sum square of error (RSS) can never be
A) Larger than sum square of total (SST)
B) Smaller than SST
C) Equal to sum square of regression (ESS)
D) Equal to one
129. ______ is the measure of the degree of linear association between two random variables.
A) Regression analysis
B) Coefficient of determination
C) Correlation coefficient

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D) Regression coefficient
130. Which of the following is not the importance of econometrics in the field of economics and other social sciences?
A) Verifying theory
B) Estimating behavioral relationship between economic/other variables
C) Establishing empirical content to the
D) Describing the structure of organization and its function
131. Which of the following model assumes that the entity’s error term is not correlated with the explanatory variables
allowing time - invariant variables to act as explanatory variables?
A) Maximum Likelihood estimation
B) Fixed effects model
C) Simultaneous equation models
D) Random effects model
132. In the classical linear regression, which assumption of error term must be satisfied?
A) Exogeneity of regressors
B) Error term is homoscedastic
C) Error terms should be uncorrelated
D) All of the above
133. Even though, the multiple coefficient of determination(R2) is a measure of goodness of fit of model, one of the following
is its weakness
A) It will always increase as more variables are added to the model when these added variables have no economic
justification
B) It never increases when another independent variable is added to a model
C) It is a good measure to decide whether to add/remove variable to/from the model
D) All of the above are answers
134. A Regression model containing both indicator and quantitative explanatory variables is called.
A) Chi-square analysis
B) Correlation analysis
C) Analysis of variance
D) Analysis of covariance

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135. According to Gauss Markov Theorem, which of the following assumption is not standard property of OLS
estimators
A) Estimators should be inconsistent
B) Estimators should be unbiased
C) Estimators should be linear
D) Estimators should possess minimum variance
136. Which of the following is correct about the behavior of spurious regression?
A) It is characterized by high R2 value and many of the coefficients will have statistically significantly
different from zero.
B) The regression is suggested by the Durbin–Watson d value of around two.
C) The R2 and the t-statistic value obtained from such a spurious regression can help to make correct
prediction.
D) The t and F statistics can be used for testing hypotheses about the parameters and adequacy of model.
137. Which of the following is not the symptom of the existence of multicollinearity?
A) High R-Square value with many estimators having significant t-ratios.
B) High pairwise correlations among explanatory variables
C) High Partial correlation coefficients
D) High R-Square value with few estimators having significant t-ratios.
138. If Autocorrelation is present in a regression method but ignored, the OLS estimators will be:
A) Biased and inconsistent
B) Not normally distributed in large samples
C) Inefficient
D) All of the above
139. Which of the following is categorical demographic variable
A) Age
B) Income
C) Marital status
D) Household expenditure
140. When more than one numerical value can be obtained for some of the parameters of the structural equations from
the reduced parameters, then the equation or the model as a whole is said to be__________.
A) Over identified
B) Just or exactly identified
C) Under identified
D) Unidentified
141. Which of the following is not correct about Random and Fixed effect model?
A) Fixed effect model is assumed homoscedastic while Random effect model is assumed hetroscedastic.

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B) Fixed effect model has varying intercepts across groups and/or times while Random effect model has
constant intercept.
C) Fixed effect model is assumed hetroscedastic while Random effect model is assumed homoscedastic.
D) None of the above

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