Answer the following questions:

Question 1: Choose the correct answers: ( 4 Marks)

1- Economic perspective includes:
A. Scarcity options and sacrifices.
B. Scarce resource, rational behavior, comparing marginal benefits with
marginal costs and choice
C. Scarce resource, rational behavior, and marginal analysis
D. Scarce resource, rational behavior, marginal analysis, and opportunity costs.
E. Scarcity. options, and opportunity costs.
F. (A, B and C.G-B and D. H-(B, C and D). I- None of the above.
2. As a consumer, the best decision is that one taken when:
A-MC-MR, B- MC<MR. C-MC>MR, D-MC-MB.
None of the above
Question two:
Which of the following sentences are true and which are false State the reason
in case of being false. (6 Marks)
a- Economics is concerned with scarce resources.
b- Scarce resources are those that have no price.
c- Scarce resources are those resources available in abundance.
Question 1:
What is the importance of macroeconomic theory?
1. Increase Aggregate Output.
2. Achieving full employment for the available economic resources
3. Achieving economic stability
5. Stable prices
Question 2:
Mark true or false and correct the wrong statements for each of the following:
1. In order to avoid the problem of duplication of GNP calculation, we can
calculate GNP by the value of final goods and services or value added( )
2. In monetary policy the government increases or decreases taxes, public
spending and government expenditures. ( )
3. GNP does not include the value of renting houses to their owners. ( )

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 4. Macroeconomic performance indicators does not help countries in
economic policy making in order to achieve economic development and
solve economic problems.
Question 3: Complete the following:
1. Net national product = (GNP)
2. GDP - Gross National Product (GSP) –
3. Total investment - depreciation of capital
Question 5: Demonstrate the simplified cycle of economic activity:
What are the correct answers?
1. When an economist says that the demand for a product has decreased, this
means that:
A) Firms make less of the product available for sale.
B) Consumers respond to a lower price by buying more.
C) The demand curve shits to right.
D) A and C.
E) C and D.
F) None of the above.
2. If consumer incomes decrease, the demand for product Y:
A) Will necessarily remain unchanged.
B) Will shift to the right if Y is a complementary good.
C) Will shift to the right if Y is a normal good.
D) Will shift to the right if Y is an inferior good.
· E) All of the above.
F) None of the above.
3. Given that demand curve kept constant, an improvement in production
technology for a
specific good will cause a (n)
A) Increase in demand and an increase in the equilibrium price
B) Increase in demand and a drop in the equilibrium price
. C) Drop in the equilibrium price and increase in quantity of equilibriu
D) Increase in supply and a decrease in the equilibrium price with an increase in
quantity of equilibrium.

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E) C and D F) B and C
4- The effects of a decrease in car prices are:
A) An increase in the quantities demanded of both cars and oil.
B) - An increase in demand of both cars and oil.
C) - A decrease in demand for cars and an increase in demand for oil.
D) - An increase in demand for oil and increase the quantities v demanded of
car.
E) - (a, b) F)-(c, b) G)- (d, c) H)- none of the
above.
5. When price of a good is 10 the quantity demanded are 1000 units, but the
price rises to 20 the quantity demanded falls to 500 units. Does it mean that
price elasticity of demand is?
a) 0.5, b) 1.9, c) 2.75, d) 1, e) 1.6
Question 1: Mark true or false and correct the wrong statements for each of the
following:
1. In order to avoid the problem of duplication of GNP calculation, we can
calculate GNP by the value of final goods and services or value added. ( )
2. In monetary policy the government increases or decreases taxes, public
spending and government expenditures. ( )
3. GNP does not include the value of renting houses to their owners. ()
4. Macroeconomic performance indicators does not help countries in economic
policy making in order to achieve economic development
and solve economic problems. ( )
5. The Gini coefficient ranges from ten to one. ( )
6. Assuming there are no direct or indirect taxes, government subsidies, or
transactions with the outside world:
National product = National income + National expenditure.( )
7. When the economy suffers from a recession and unemployment problem, the
government applies a deflationary fiscal policy. ( )
8. Keynes believes that aggregate expenditure at consumption is the
primary driver of economic activity. ( )
9. Aggregate expenditures at investment (I), government (G) and net exports
(NX) are induced variables of current income. ( )

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10. Keynes agreed the idea of Say's law (supply creates equal demand for it),
and the idea of economics is self-regulating. ( )
11. In Keynes consumption and saving functions when consumption is greater
than income, and therefore negative savings.()
12. When the consumption function curve intersects with the yield line, the
saving function curve intersects with the horizontal axis.()
13. In Keynes consumption and saving functions consumption curve continues
to increase but at ratios more than the increase in income.( )
14. Surplus supply pushes the price level to up, drives consumers to reduce
demand for goods and services, and producers to increase production. ( )
15. Marginal propensity to consume ranges from ten to one. ( )
Question 2: Choose the correct answer from the brackets:
1. In the (Monetary policy - Fiscal policy - Trade Policy) the government buys
and sell bonds and regulate financial institutions by the Central Bank.
2. It is preferable to rely on the estimation of the state budget on (GNP - GDP -
NNP).
3. (GNP - GDP - NNP) is the value of society's production, whether produced
within or outside the state. The criterion is nationality, not political boundaries.
4. If the income is zero, the (Autonomous - Induced - Total) consumption is
zero.
5. (Consumption - Saving - yield disposable) = -a + (1-b)y.
6. When income is (greater than - less than - equal) consumption and the
savings are positive.
Question 3: Complete the following:
1. Net national product = GNP
2. GDP = Gross National Product (GNP) - ...
3. Net investment = total investment - .......
4. Yield Disposable = ..........+……………..
Question 4: Answer only two of the following:
1. Why do we need macroeconomic performance indicators?
2. Explain with drawing the complex cycle of economic activity. (in a multi-
sector economy)?
3. Explain with drawing Keynes consumption and saving functions?

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4. Explain with drawing Lorenz curve and distribution of national income and
welfare?
5. An improvement in production technology for a specific good will cause a (n)
A) Increase in demand and an increase in the equilibrium price
B) Increase in demand and a drop in the equilibrium price.
C) Drop in the equilibrium price and increase in quantity demanded.
D) Increase in supply and a decrease in the equilibrium price.
E) C and D F) B and C
6. A micro economist would most likely study:
A) How consumers respond to a change in gasoline prices.
B) The effects of an income tax reduction on the size of the national budget
deficit
C) The effects of aggregate consumer debt on overall consumption spending
D) The relationship between the size of the money supply and the rate of
inflation 7. When price of a good is 10 the quantity demanded are 1000 units,
but the price rises to 12 the quantity demanded falls to 600 units. Does it mean
that price clasticity of demand is?
a) 0.5. b) 1.9. c) 2.75. d) 3.8, e) 1.6
Solving models and exercises at Macroeconomic
Question 1: Mark true or false and correct the wrong
statements for each of the following:
1. In order to avoid the problem of duplication of GNP calculation, we can
calculate GNP by the value of final goods and services or value added. ()
2. In monetary policy the government increases or decreases taxes, public
spending and government expenditures. ( )
3. GNP does not include the value of renting houses to their owners. ()
4. Macroeconomic performance indicators does not help countries in economic
policy making in order to achieve economic development and solve economic
problems. ( )
5. Assuming there are no direct or indirect taxes, government subsidies, or
transactions with the outside world: National income - national expenditure =
national product. ()
6. The Gini coefficient ranges from ten to one.()

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7. When the value of the Gini coefficient is (zero - one half - one)
the equitable distribution of income is better.()
8. When the value of Gini coefficient is large (zero - one half one), the equity of
income distribution is worse. ( ).
9. Surplus demand means that the supply of goods and services is more than
the quantity demanded.()
10.Surplus supply means that the quantity of supply of goods and services is
less than the quantity of demand for them. ( )
11. Surplus demand pushes the price level to up, drives consumers to reduce
demand for goods and services, and producers to increase production. ( )
12. Surplus supply pushes the price level down, and producers reduce
production ()
13. Macroeconomic equilibrium is achieved when aggregate supply equals
aggregate demand. ( )
14. The aggregate supply at goods and services in society is determine by the
interaction of many forces affecting to it, such as fiscal policy, monetary policy,
and other forces. ( ).
15. The aggregate demand of goods and services in society is determine by the
interaction of many forces that affect to it, such as price and cost levels,
potential output, capital, labor and technology.()
16. The interaction between aggregate supply and aggregate demand
determines real GDP, employment and unemployment, price levels and inflation,
foreign trade, and others. ()
17. Autonomous consumption is a function of income because it follows the
change in income. ( )
18. If the income is zero, the Induced consumption is zero ( ).
19. Marginal propensity to consume: Expresses the amount of increase in
consumption due to the increase of expenditure by one unit. ( )
20. We can get Marginal propensity to consume by dividing the amount of
change in consumption by the amount of change in income. ( )
21. Consumption expenditure is always stable. ( )
22. The relationship between income and consumption is positive but not
constant. ( )
23. When the consumption does not increase at the same rate of increases in
the income, it means there are expenditure in the economy. ( )
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24.Saving depends upon to the current yield disposable. ( )
25. When the income is zero the consumption is, also equal to zero. ( )
26. Autonomous saving (-a): The amount of reduction in savings when income is
equal to zero, which is equal to the amount of autonomous consumption. ( )
27. Marginal propensity to consume ranges from ten to one. ( )
28. In Keynes consumption and saving functions consumption curve starts at
zero point (45° angle) to indicate the increase in income at equal units. ( )
29. In Keynes consumption and saving functions consumption curve continues
to increase but at ratios more than the increase in income. ()
30. In Keynes consumption and saving functions at first stage, the consumption
function curve is higher than the yield line to indicating the existence of
autonomous consumption. ( )
31.In Keynes consumption and saving functions when the consumption function
curve intersects with yield line it is meaning, that the income equals
consumption and the savings is zero. ( )
32. If the consumption function curve intersects with yield line, it is the absolute
equality between consumer expenditure and national income. ( ).
33. In Keynes, consumption and saving functions when yield line is less than the
consumption function curve where consumer spending is less than income at
higher levels of income. ( )
34. The savings function curve starts at point (-a), which is the negative value of
the autonomous consumption from which the consumption function started, and
it is negative because it represents a decrease in savings to finance
autonomous consumption. ( )
35.In Keynes consumption and saving functions when consumption is greater
than income, and therefore negative savings. ()
36. When the consumption function curve intersects with the yield line, the
saving function curve intersects with the horizontal axis.
37. Keynes's theory of determining of equilibrium real GDP, employment and
prices focuses on the relationship between aggregate income and savings. ( )
38. In the income-expenditure model, the equilibrium level of real
GDP is consistent with the current level of aggregate expenditure. ( )
39. Keynes used the income-expenditure model to argue that the economy's
equilibrium level of output may not be compatible with the normal level of real
GDP (full employment of economic resources).
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40. Keynes believes that prices and wages are very flexible. ( )
41.Keynes believes that the inflexibility of prices and wages especially in the
downward trend prevents economic resources to be fully employ.
42.Keynes believes that the inflexibility of prices and wages prevents the
economy returning to the normal level of real GDP.
43.Keynes agreed the idea of Say's law (supply creates equal demand for it),
and the idea of economics is self-regulating.
44. The aggregate demand consists of aggregate expenditure at consumption
(C), investment (I), government (G) and net exports (NX). ( )
45. Aggregate expenditures at investment (I), government (G) and net exports
(NX) are autonomous variables (independent) of current income. ( )
46. Aggregate expenditure at consumption is an induced variable of current
income (real GDP). ( )
47.Keynes believes that aggregate expenditure at consumption is the primary
driver of economic activity. ( )
48. In most economies, the marginal propensity to consume is quite high,
ranging anywhere from 0.60 to 0.95. ()
49. When the economy suffers from an inflation problem, the government
applies a deflationary fiscal policy. ( )
50. When the economy suffers from a recession and unemployment problem,
the government applies an deflationary fiscal policy. ( )
51. When the economy suffers from recession and unemployment, the aim of
monetary policy is to increase the money supply and the ability of members of
society to purchase goods and services, until the economic activity is activate.( )
52.Fiscal policy and monetary policy are an alternative to each other. ()
53. There are must be coordination between the objectives of fiscal policy and
the objectives of monetary policy to ensure the success of the country's
economic policy. ()
Question 2: Choose the correct answer from the brackets:
1. In the (Monetary policy - Fiscal policy - Trade Policy) the government buys
and sell bonds and regulate financial institutions by the Central Bank.
2. It is preferable to rely on the estimation of the state budget on
(GNP - GDP - NNP).

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3. (GNP-GDP-NNP) is the value of society's production, whether produced
within or outside the state. The criterion is nationality, not political boundaries.
4. GNP at (real money - real prices - market price) excludes the effect of the rise
in the general price level (inflation), where GNP is calculated at base year
prices.
5. GNP at (real money - real prices - market price) is a good indicator of the
performance of the national economy.
6. GNP at (real money - real prices - market price) is calculated at market prices
and is constantly changing.
7. GNP at (real money - real prices - market price) is not a good indicator of the
performance of the national economy because it includes the value of the rise in
the general level of prices (inflation), which makes the value of output is large
and this is not true.
8. Aggregate (demand - supply - expenditure): refers to the total amount that the
different sectors in the economy spend in a given period.
9. Aggregate (demand-supply-expenditure): refers to the total quantity of goods
and services that the nations businesses produce and sell in a given period.
10.(Autonomous - Induced - Total) consumption: Expresses the value of
consumption when income is zero and represents a constant value that does
not change when income changes.
11.(Autonomous - Induced - Total) consumption: Expresses the value of
consumption that changes with the income change (direct relationship).
12. If the income is zero, the (Autonomous -Induced - Total) consumption is
zero.
13.(Autonomous - Induced - Total) saving: The amount of increase in savings
resulting from the increase in income, when income is greater than
consumption.
14.(Autonomous - Induced - Total) saving = (1-b)y
15. (Consumption - Saving - yield disposable) = - a + (1-b)y.
16.(Consumption - Saving - yield disposable) = a + by.
17. When income is (greater than - less than - equal) consumption and the
savings are positive.
Question 3: Complete the following:
1. Net national product = GNP - ...........
2. GDP = Gross National Product (GNP) - ...
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3. GNP = ........ ............ + depreciation of capital
4. Net national product = GNP - .........
5. Depreciation of capital = GNP –
6. Net investment = total investment - ...
7. Saving = Yield Disposable –
8. Yield Disposable =
Question 4: What is the importance of macroeconomic theory?
Question 5: What are Macroeconomic objective?
Question 6: What are Macroeconomic instruments?
Question 7: Why do we need macroeconomic performance indicators?
Question 8: Explain with drawing the simplified economic activity cycle. (in an
economy with only two sectors)?
Question 9: Explain with drawing the complex cycle of economic activity. (in a
multi-sector economy)?
Question 10: Explain with drawing Lorenz curve and distribution of national
income and welfare?
Question 11: How to determine the level of economic activity?
Question 12: Explain with drawing Keynes consumption and saving functions?
Question 13: Explain how financial policy can be used to solve the inflation
problem?
Question 14: Explain how fiscal policy can be used to solve the recession and
unemployment problem?
Question 15: Explain how monetary policy can be used to solve the problem of
inflation?
Question 16: Explain how monetary policy can be used to solve the problem of
stagflation and unemployment?

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