Economics 2012

1. Two major service providers that help Ethiopia earn considerable foreign exchange compared to
other service providers are

A. National Museum and National Lottery.

B. National Lottery and Ethio-telecom.
C. Ethiopian Airlines and Ethiopia Shipping Lines.
D. National Museum and Ethio-telecom.

Answer: C

Explanation:

In 2008/09, foreign exchange income earned from service providers such as Ethiopian Airlines and
Ethiopian Shipping Lines, as well as from various service sub-sectors such as tourism, communication,
insurance and financial services.

2.The 1992 Proclamation on Ethiopian transport policy allows except

A. free entry into existing transport associations.

B. obtaining licenses to form new transport associations.
C. regulation of the freight transport industry.
D. promotion of efficiency and equitable transport distribution.

Answer: C

Explanation:

Major liberalization of the transport industry began with government Proclamation No. 14/1992.

. The promotion efficiency and equitable distribution.

• Many of the private commercial freight and passenger transport activities left the corporation and
formed their own

independent association.

Free entry into existing associations,

3.Compared to other African countries, Ethiopia is more successful in terms of

A. Railways transport.
B. Metro transport services.
C. Road transport.
D. Air transport and Civil Aviation.

Answer: D
Explanation:

Ethiopia is more successful in Air transport and Civil Aviation compared to other African countries.

4. All are key resource bases of Ethiopia except;

A. availability of many rivers and lakes.

B. availability of sea port.
C. abundant valuable minerals.
D. high potential to produce hydroelectric and geothermal energy.

Answer: B

Explanation:

Key resources of Ethiopia are:

Free entry into existing associations,

•Valuable minerals including gold and platinum.

5. What can we say about the current population composition of Ethiopia

A. The proportion of female is close to 50%.

B. More than half of the whole population lives in urban areas.
C. There is very high proportion of old age people in the economy.
D. The proportion of literate people is greater than 80%.

Answer: A

Explanation:

The total number of persons enumerated in the third population census, 73,918,505. Of these,
37,296,657 (50.5%) weremales and 36,621,848 (49.5%) were females. So the proportion of female is
close to 50%.

. According to the third population census the percentage of female is 49.5% and male is 50.46%, the
proportion of female is close

to 50%.

According to the population census out of 73,918,505 population 11,956, 170 million people lives in
urban, 61,962,335 million people lives in rural areas. More people lives in rural areas.

. 50% of its population is in the working-age group of 15-64 years.

. More percentage is illiterate people.

6. The following are true of Bi-modal agricultural strategy except it

A. creates off-fam job opportunities.

B. allows the transfers of technology.
C. supports individual rights to acquire land.
 D. promotes large scale-diversification.

Answer: A

Explanation:

Bi-modal agricultural strategy are:

. It support individual rights to acquire land

It invites more capital and technology investment for agriculture

It promotes large-scale diversification

It allows the transfer of technology

7.Which of the following is not true about the agriculture sector in Ethiopia?

A. It is the mainstay of the Ethiopian population.

B. It covers the largest share in terms of export earnings.
C. It has contributed the largest share to the country's GDP in recent years.
D. It dominated by small holder farm system.

Answer: C

Explanation:

Agricultural sector:

. contributes about 45% of the overall GDP of the country:

. generates more than 80% of export earnings:

.employs about 85% of the population; and supplies about 70% of raw materials to the secondary
activities

. In recent years the largest share to GDP comes from the service sector.

8.Challenges in an attempt to transform the Ethiopian agricultural sector include except

A. credit offering at lower interest rates.

B. inadequate rural markets.
C. inappropriate pricing policy towards agricultural land property
D. inappropriate entitlement of land property.

Answer: A

Explanation:

Human- Made Problems of agriculture sector are:

. Land fragmentation
. Lack of infrastructure

. Lack of credit facilities

. Lack of effective land-ownership entitlement

. The use of backward technology . Inadequate rural markets

9. To mitigate the problems affecting the Ethiopian agricultural sector, it is important to take the
following possible remedies except

A. Pursue an effective land - ownership right in a way farmers can develop long-term farm
practices
B. use capital intensive technology
C. reduce the prevailing heavy dependence on rain-fed agricultural practices.
D. promote committed literacy companies to help farmers understand price and farm-technique
information.

Answer: B

Explanation:

the possible remedies are:

. Reduce the prevailing heavy dependence on rain-fed agricultural practices

. Production of drought-resistant crops in drought-prone areas so that the recurrence of acute shortages
of food will be minimized.

. Pursue an effective land-ownership right to so that the farmers will develop long-term development
commitments.

. Promotion of extension services supported with consistent capacity buildings tasks. . Promote
committed literacy campaigns to help farmers under stand price and farm- technique information.

. Promote infrastructure facilities as per their availability.

10. The industrial groups that have recently contributed most to the Ethiopian foreign exchange
earnings are

A. paper-printing and chemical.

B. metals and non-metals.
C. food-beverage and textiles.
D. leather-footwater and wood-furniture.

Answer: C

Explanation:

The foreign exchange contribution of the industrial sector are:

.Textiles -41.5%
. Chemical-4.27%

. Food and bavearage-32% . Metals-3.2%

. Leather and footwear-10.8% . Non-metale0.9%

. Wood and furniture -6.1% . Paper and printing-0.04%

11.Identify the correct statement about minerals and environment in Ethiopia.

A. The contribution of the mineral sector to the GDP of the country is very high.
B. The economy has no environmental problems.
C. There are insufficient amount minerals in the country.
D. The development the mineral sector is at infant stage.

Answer: D

Explanation:

Mining contributes only about 1% to Ethiopia's GDP

. A wide variety of minerals including metals, non-metals (the most important currently being gold), as
well as industrial and energy minerals, are extracted by various types of quarrying activities in the
country.

. The exploitation and development of the minerals sector is at its infant stage.

12.Under the Derg regime,

A. Ethiopia experienced a widespread drought.

B. the private sector was able to grow at a very high rate.
C. Ethiopia had no development plans.
D. the country was structured Under a capitalist system.

Answer: A

Explanation:

During the Derg regime there was:

. widespread drought all over the country, . manufacturing sector stagnated as agricultural inputs
declined

. lack of foreign exchange and declining investment

. high rise in defense expenditure

. The country was structured command economic system which aimed at the nationalization and
restructuring of the Ethiopian economy.

. The country had economic plan with four distinct phases.

13. What do the development plans under the Derg and EPRDF have in common?
 A. They focus on industrialization as the only way to growth and development.
B. The plans never talk about poverty reduction and buildings democracy.
C. They aim to bring growth and development in the economy.
D. They have nothing in common.

Answer: C

Explanation:

Both Derg and EPRDF develop a plan enhance growth and development of the country.

14. Relative to unimodal agriculture, bimodal agriculture

A. protects peasants from eviction

B. focuses only on production of food crops.
C. reduces inequality among rural households.
D. promotes transfer of technology.

Answer: D

Explanation:

Relative to uni-modal agriculture, bimodal agriculture allows the transfer to technology

15. Today, the Ethiopian economy is predominantly an agrarian economy since

A. the majority of the growth rate in the OGDP comes from the agricultural sector.
B. most of the total national investment projects go to this sector.
C. nearly 80% of Ethiopian live in rural areas.
D. most of the GDP comes from this sector.

Answer: C

Explanation:

The Ethiopian economy is predominantly agrarian with over 85% of its population living in rural areas
and engaged in agricultural and allied activities.

16. The Ethiopian industrial sector is characterized by the following except

A. strong competition from improved goods.

B. usage of labor intensive technology.
C. absence of adequate institutional support.
D. a consumer bias against local products.

Answer: B

Explanation:

Problem of industrial sector are:

• Weak domestic demand for manufacturing output

• Lack of marketing information about both local and export markets

• Strong competition from cheap imports

·A consumer bias against local products

17.Over recent years, to establish a large- scale manufacturing hub within Africa, the Ethiopian
government has particularly been doubling its efforts on

A. road constructions
B. hotel and tourism works.
C. special zones of industrial parks establishment.
D. agriculture and irrigation expansion.

Answer: C

Explanation:

The large, medium and light scale industrial parks are expected to facilitate the situation for the planned
transition to the industry-led economy which would accelerate the manufacturing sector and contribute
to job creation, import substitution, strengthening export, and creating chance for innovation.

18. The theory of linkages stresses that

A. when certain industries are developed first, their interconnections with other industries will
induce the development of new industries.
B. the relation between agriculture and O non-agriculture sector is very strong in developing
countries.
C. when certain industries are developed first, their interconnections with other industries will
reduce the development of new industries.
D. when certain industries are developed fist, there is uncertainty whether this could help facilitate
the development of new industries.

Answer: A

Explanation:

When one industry developed first it creates an opportunity for other industry to develop one industry
can creates strong linkages among the different sectors of the domestic economy.

19.In an industry when a firm buys a good from another firm to use as an input for its outputs is called

A. backward linkages.
B. localization economies.
C. agglomeration economies.
D. forward linkages.

Answer: D

Explanation:
If the final product or finished products of one industry is used in another industry as raw materials then
a forward linkage occurs. Forward linkage occur when the outputs of an industry becomes the input for
other industry.

. A backward linkage occurs when its production of output requires substantial intermediate inputs for
many other industries with in the same industry area.

20. When transportation costs are significant to a main market, users of the outputs off an industry may
benefit from a nearby location to save costs of transportation. This benefit is a type of

A. backward linkages.
B. localization economies.
C. agglomeration economies.
D. forward linkages.

Answer: C

Explanation:

Agglomeration economies or external economies of scale refer to the benefits from concentrating
output and housing in particular areas.

. If an area specializes in the production of a certain type of good, all firms can be benefit from various
factors such as: Good supply networks.

21.For a rational consumer, total utility will be a maximum when

A. average utility is zero.

B. marginal utility is zero.
C. marginal utility equals total utility.
D. marginal utility equals average utility.

Answer: B

Explanation:

The relationship between Total Utility (TU) and Marginal Utility (MU) are:

. TU increases as long as marginal utility is positive.

.TU is maximum when Mu is zero.

. TU starts declining when MU becomes negative.

22.Indifference curves are convex to the origin because we assume that two consumption goods are

A. imperfect substitutes.
B. unrelated
C. perfect substitutes.
D. perfect complements.

Answer: A
Explanation:

Convexity of difference curve implies that the two goods can substitute (Or one another, but not
perfectly.

23.A decrease in income of consumer with no changes in the price of either good will cause, assuming
both goods are normal

A. an outward shift of the budget line.

B. no change in the budget line.
C. a rotation of the budget line along the horizontal axis.
D. an inward shift of the budget line.

Answer: D

Explanation:

When income of the consumer rises, the budget line moves outwards by the proportion of increase in
the purchasing power.

When income declines the budget line moves inwards in accordance with the decrease in the purchasing
power.

24.In the ordinary theory of utility, the income consumption curve (ICC) shows the way in which

A. income is affected as prices of two commodities change.

B. consumption varies as income of the consumer changes.
C. consumption varies as price of a commodity changes.
D. consumption varies as prices of two commodities change.

Answer: B

Explanation:

The location of the budget line varies with money income.

. An increase in money shifts the budget line to the right.

. A decrease in money income shifts it to the left.

25. Which one of the following is true statement of short run production function with one variable
input?

A. The lowest Average product (AP) occurs where AP and Marginal product (MP) are equal to each
other
B. AP and MP curves meet at MP"s maximum point.
C. When AP Curve is rising, MP is higher than AP.
D. MP is above AP is falling.

Answer: C

Explanation:
Relationships between the MP curve and AP

curve are:

. When MP > AP, this means that AP is rising.

• When MP = AP, this means that AP is maximum,

. When MP < AP, this means that AP is falling.

26. Which of the following is a microeconomic issue?

A. Inflation dramatically increased in Ethiopia in the previous year.

B. The price of edible oil increased in Ethiopia over the last 2 months.
C. The Ethiopian economy experienced rapid economic growth last year.
D. Unemployment rate soared in Ethiopia in recent years.

Answer: B

Explanation:

Microeconomics deal with:

• The part of economics concerned with individual units such as a person, a household, a firm, or an
industry.

• The economist observers the details of an economic unit, or very small segment of the economy,
undera figurative microscope. . In microeconomics we look at decision making by individual customers,
workers, households, and business firms.

• We measure the price of a specific product, the number bf workers employed by a single firm.

27.The opportunity cost of any economic action is

A. all the possible alternatives forgone.

B. the next best alternative forgone.
C. the monetary cost but not the time required.
D. the time required but not the monetary cost.

Explanation:

An economy that is fully employed and thus operating. on its production possibilities curve must
sacrifice the output of some types of goods and services to increase the production of others.

• The gain of one type good or service is always accompanied by an opportunity cost in the form of the
loss of the other type.

28.Shortage of economic resources mainly implies that people must

A. make choices to satisfy their wants.

B. compete to satisfy their wants.
C. cooperate to satisfy their wants.
D. trade to satisfy their wants.
Answer: A

Explanation:

With limited resources, we cannot satisfy all our wants, and thus we make choices. • The economic
problem is called a problem of choice because the economy has to make choices between various types
of goods that can be produced with the given resources.

29.The major role entrepreneurs can play in an economy is

A. borrowing money from financial institutions to start their businesses.

B. providing loans to financial companies at high rates of interest.
C. telling consumers what they should O want or expect from the business environment.
D. talking risks to create businesses that yield products that meet the wants and needs of
consumers

Answer: D

Explanation:

An entrepreneur is a person who organizes the other factors (resources) and undertakes the risks and
uncertainties involved in production.

30. The law of demand states that, ceteris paribus, the higher the price of a good,

A. the larger is the quantity of the good demanded.

B. the smaller is the quantity of the good demanded.
C. the smaller is the demand for the good.
D. the larger is the demand for the good.

Answer: B

Explanation:

A fundamental characteristics of demand is: . Other things equal, as price falls, the quantity demanded
rises, and as price rises, the quantity demanded falls.

. In short, there is a negative or inverse relationship between price and quantity demanded.

31.The economic definitions of market includes except

A. a place or structure in which buyers and sellers of a commodity remain in contact.

B. a place or mechanism by which buyers and sellers are able to exchange goods or services for
money.
C. a place or an arrangement where buyers and sellers interact to exchange goods and services.
 D. merely a physical place where commodities are bought and sold.

Answer: A

Explanation:

The term market refer to:

a particular place, but to the mechanism or arrangement by whch buyers and sellers of a commodity are
able to contact each Other for having economic exchange and by which they are able to strike

deals about price and the quantity to be bought and sold.

. In simple words, we may define markets as a structure in which the buyers and sellers of mmodity
remain in contact.

32.In monopolistic competition firms maximize profit at the level of output at which

A. Marginal revenue = Marginal cost and marginal cost is rising

B. Marginal revenue = Average cost
C. Marginal revenue = Average revenue
D. Marginal revenue = Marginal cost and marginal cost is falling

Answer: A

Explanation:

The pure monopolist maximizes profit by producing at the MR = MC and MC is rising.

33.Producers operating in monopolistically competitive markets are likely to

A. differentiate their products.

B. be allocative efficient in the short-run.
C. produce up to the point where marginal revenue is greater than marginal cost.
D. make only normal profits in the short-run

Answer: A

Explanation:

Producers in monopolistically competitive market:

• They produce products with slightly different physical characteristics., offer varying degrees of
customer service, provide varying amounts of locational convenience, or proclaim special qualities, real
or imagined, for their products.

. A monopolistic competitor will maximize profit or minimize loss by producing that output at which
marginal revenue equals marginal cost.

. In the long run, easy entry and exit of firms cause monopolistic competitors to earn only an a normal
profit.
34.In a given society, which one is NOT considered as a cost of youth unemployment?

A. Crime expansion
B. Youth empowerment
C. Loss of skills by the unemployed
D. Ensuing socio-political unrest

Answer: B

Explanation:

The economic cost of unemployment youth is:

. Unemployed people failing to get any legitimate means of livelihood may take recourse to anti-social
activities such as gambling, theft, robbery, etc.

. The unemployed people may become restless and pressurize the government for more jobs.

. They involved in dangerous forms of terrorism, militancy and secessionist demands, which is bound to
cause political instability, economic disability and social tensions.

35.An increase in injections into the economy may lead to an outward shift aggregate

A. supply and demand-pull inflation.

B. supply and cost-push inflation.
C. demand and demand-pull inflation.
D. demand and cost-push inflation

Answer: C

Explanation:

When the demand for goods and services exceeds the available supply at current prices, it is' a demand-
pull inflations.

. Cost-push inflation resulting from rising costs of production and slack resource utilization.

36.A decrease in quantity demanded due to a rise in the price of the commodity is, graphically,
represented by a

A. leftward shift in the demand curve.

B. rightward shift in the demand curve.
C. movement down and to the right along a demand curve.
D. movement up and to the left along a demand curve.

Answer: c

Explanation:

Change in quantity demanded occurs due to change only in the price of the commodity itself.
. when the price of the commodity increases, there is a downward movement along the demand curve.

• When the price of the commodity decreases, there is upward movement along the demand curve.

37.Which of the following is a determinant of the demand for good Y?

A. The number of sellers of good Y

B. The income of consumers who buy good Y
C. Fiscal policy of the government
D. The cost of labor used to produce good Y

Answer: B

Explanation:

Changes in one or more of the determinants of demand such as

. Consumers tastes

The number of buyers in the market The money incomes of consumers

The prices of related goods, and

Consumer exception shift the market demand curve.

38.A Business College decides to increase tuition fees aiming to get higher total revenue. This strategy
will however work if the demand for education at that Business College is

A. unit elastic demand.

B. price-inelastic demand.
C. perfectly elastic demand.
D. price-elastic demand.

Answer: C

Explanation:

If the demand for a commodity is price- inelastic, the percentage decrease in quantity demanded is less
than the percentage increase in price. This leads to an increase in total revenue due to increase in price.

• The demand for education at business college is inelastic an increase in tuition fee will increase the
total revenue of the business college.

39.A long-run demand curve, as compared to a short-run demand curve for the same commodity, is
generally

A. of the same elasticity

B. cannot be determined.
C. more elastic.
D. less elastic.

Answer: C
Explanation:

Price elasticity is generally low for short periods as compared to long periods. Because:

. It takes time for consumers to adjust their tastes, preferences and habits.

. New substitutes may be developed in the long run.

. Therefore, of the price of a commodity rises, the demand for it Will be inelastic in the substitutes may
not be available.

. In the long-run, demand will be elastic as the umer may which switch over to the consumers may
which switch over to new substitute.

40.If the cross price elasticity of demand for two products is -2.5, then the products are

A. substitute and demand is cross price elastic.

B. complement and demand is cross price inelastic.
C. substitute and demand is cross price inelastic.
D. complement and demand is cross price elastic.

Answer: D

Explanation:

Cross elasticity measures the responsiveness of demand for a change in the price of the related
commodity.

. Cross elasticity is positive in case of substitute goods and negative in aces of complementary gods.

41.The difference between Gross National Product (GNP) and the Net National Product (NNP) is

A. capital consumption allowance or depreciation.

B. net taxes.
C. the net factor income from abroad.
D. Onet exports.

Answer: A

Explanation:

NNPmp = GNPmp - Depreciation

GNPmp = NNPmp - Depreciation

42.Which one of the following is NOT main property of Marginal Propensity to Consume (MPC)?

A. MPC of rich people is generally higher than those of poor people.

B. MPC is stable in the short-run.
C. MPC is greater than zero, but less than one.
D. MPC rices with increase in income of the consumers.
Answer: A

Explanation:

The main properties of MPC:

MPC is greater than zero but less than one (MPC > 0, but MPC < 1)

MPC falls with increase in income MPC of the poor class is higher than those of other classes

MPC is stable in the short run

43.The sum of Marginal Propensity to Consume (MPC) and Marginal Propensity to Save (MPS) is always
equal to

A. greater unity.
B. less than unity.
C. unity.
D. zero.

Answer: C

Explanation:

The sum ofMPC and MPS is always equal to unity (1)

. MPC+MPS=1

44.International free trade is based on the principle of

A. constant economics of scale.

B. production possibility advantage.
C. increasing economies of scale.
D. comparative advantage.

Answer: C

Explanation:

International trade is based on:

. Differences in resource endowment, demand, and economies of scale and specialization

45. When a country's imports are more than exports, the country is said to have a

A. trade deficit
B. trade balance
C. favorable foreign trade
D. positive value of trade

Answer: A

Explanation:
When exports are more than imports, a country is said to have a trade surplus. When -imports are more
than exports, a country is said to have a trade deficit.

46.Concerning the agricultural sector of Ethiopia, all are the major challenges except.

A. lack of infrastructure in rural area.

B. heavy dependence on rain-fed agriculture
C. lack of fertile land
D. lack of access to credit and financial facilities in the sector

Answer: C

Explanation:

The major challenges of the agricultural sector are:

. Lack of infrastructure

. lack of credit facilities

. Lack of effective land-ownership entitlement

47.From the under listed policy interventions, the one which does not enhance agricultural productivity
in Ethiopia is

A. development and expansion of irrigation coverage.

B. introducing tariffs and taxes on intermediate agriculture inputs.
C. introduction of new and improved varieties of seeds and inputs.
D. enhancing the extension service.

Explanation:

To enhance the agricultural sector of Ethiopia:

. Introduction of improved seeds, fertilizers, pesticides and weed killers.

. Improved infrastructure facilities

. Improve land fragmentation and over- gultivation

. Increase expansion of irrigation coverage.

. Introduction of tariffs and taxes on agricultural inputs decreases the productivity of agricultural sector.

48.According to reports by NBE (2017/18), the share of industrial sector from the GDP is 27% in 2017/18
with the service sector accounting for 39%. Only 5% of the GDP comes from the manufacturing sector
during this period. Hence, we can say that

A. multiple and continued effort is needed in the future since the economy has not industrialized.
B. the performance of the industrial O sector is satisfactory and should continue as it is.
C. the contribution of the industrial O sector exceeds that of the agriculture sector in 2017/18.
D. the economy has joined the industrial world based on Sutcliff's criteria.
Answer: A

Explanation:

The manufacturing sector plays the most important and dynamic role in the

industrialization process.

. According to the reports only % of the GDP comes from the manufacturing sector. More efforts are
needed to increases the industrialization pr

of the economy.

. Sutcliff criteria for industrialization are: . 25% of the GDP should come from the industrial sector.

. At least 60% of the industrial output should originate from the manufacturing sectors. . At least 10% of
the population should be engaged or employed in the industrial sector.

49. The manufacturing sector in Ethiopia is characterized by

A. firms with limited access to finance and financial resources.

B. firms operating under well-established institutions and dependable infrastructure.
C. the dominance of firms with labour intensive technologies.
D. the prevalence of strong and dominant firms in the international markets

Answer: A

Explanation:

The shortage of finial resources has been one for the major bottlenecks for industrial development in
Ethiopia.

. The industrial firms are weak to compute with international markets

. The technology we use is capital intensive. . Other problems like policy problems and human-resource-
related problems in relation to lack of skilled manpower and absence of industrial discipline and work
ethnics.

50. Which one of the following cannot be taken as a policy option to solve the key problems of the
industrial sector in Ethiopia?

A. Improving access to finance

B. Reducing the number of skilled manpower available in the economy.
C. Improving the input supply problem.
D. Development of appropriate technology.

Answer: B

Explanation:

To improve the industrial sector:

• improve the access of finance to increase the shortage of financial resources.

Increase the supply of raw material

• Improve the use of modern technology based on available local new raw materials

• Increase the number of skilled manpower available in the economy.

51.According to the recent national statistical report, the contribution of mining sub-sector to the
Ethiopian GDP is about

A. 5%
B. 0.1%
C. 1%
D. 10%

Answer: C

Explanation:

Mining contributes only about 1% to Ethiopia's GDP.

52.The current median age for the Ethiopian population is about

A. 30 years
B. 40 years
C. 10 years
D. 20 years

Answer: D

Explanation:

The median age in Ethiopia is 19.5 years.

53.Ethiopia has ratified the following international agreement on environment except

A. law of the Sea.

B. climate- Change-Kyoto-Protocol.
C. ozone Layer protection.
D. hazardous wastes.
E. Answer: A

Explanation:

Ethiopia has accepted the following international agreements on environment: • Biodiversity

 Climate Change
 Climate Change-Kyoto - Protocol
 Desertification Species
 Endangered Species
 Hazardous Wastes
  Ozone layer Protection.

54. Under the Derg regime, the following National Development Plan were introduced except

A. Strategies of Cooperation and Establishment of state farms.

B. Peace, Democracy and Development Programs.
C. Nationalization.
D. Cooperation campaign.

Answer: B

Explanation:

National development in the Derg regime: . Cooperativisation and establishment of state farms

. Nationalization measures and the highly unstable political climate caused economic dislocation in
sectors such as agriculture and manufacturing.

. New Development Through Cooperation Campaign (commonly referred to as zemecha)

. The EPRDF government emphasized the interrelationships between peace, democracy and
development.

55.Under EPRDF regime, Ethiopia relatively enjoyed the highest economic growth rates during the
economic plan of

A. Growth and Transformation of Plan I.

B. Growth and Transformation Plan II.
C. Sustainable Development and Poverty Reduction Program (SDPRP)
D. Plan for Accelerated and Sustained Development to end Poverty (PASDEP)

Answer: A

Explanation:

The Growth and Transformation Program (GTP) replaced the Plan for Accelerated and Sustained
Development to End Poverty (PASDEP) and was effective as of fiscal years 2010-11. According to the
Ministry of Finance and Economic Development, this plan emphasizes roads, telecommunication, and
energy and water sectors.

56. Giving priority to industrial sector in Ethiopia may lead to superior outcome in the economy
compared to ether sectors because

A. the industrial sector is expected to have strong linkages with the rest of the economy.
B. the environmental impact of industrial sector is negligible.
C. industrial sector is the biggest employer and major source of livelihood in the economy.
D. the country has abundant capital O required for the development of the industrial sector.

Answer: C

Explanation:
Economic development cannot be achieved without the development of industrial sector.

. A developed industry is likely to boost the entire economy by making it nationally integrated, flexible,
and capable of self generated and self-sustained growth.

. That is why the ultimate objective of the developing nations, including Ethiopia, is industrial
development

57.Suppose Mugher Cement factory has decided to subcontract supply of some inputs (e.g. limestone)
to local farmers who own the minerals. This type of linkage between an industry and input suppliers is
called

A. horizontal linkage
B. consumption linkage
C. backward linkage
D. forward linkage

Answer: D

Explanation:

If the final product or finished products of one industry is used in another industry as raw materials then
a forward linkage occurs. Forward linkage occur when the outputs of an industry becomes the input for
other industry.

. A backward linkage occurs when its production of output requires substantial intermediate inputs for
many other industries with in the same industry area.

Lime stone is the final product for farmers.

58. According to Hirschman, a linkage created when investment in a project encourages investment in
subsequent stages of production and market is called

A. horizontal linkage
B. forward linkage
C. infrastructure linkages
D. backward linkage

Answer: B

Explanation:

Infrastructure linkages can help create a local industry because they promote the shared use of
infrastructure for

development. Infrastructure development can create multiplier effects. Horizontal linkages refer to skills
developed in the extractives sector being transferred to other sectors. This includes cooperation
between different companies in the same industry based on licensing, technologist, joint buying and
venture agreements.
59. The contribution of the service sector to the foreign exchange earnings in Ethiopian economy over
the last couple of years is

A. negative and very high in terms of net balance relative to the trade balance.
B. very low and insignificant and hence can be ignored.
C. below the contribution by the manufacturing sector.
D. better than the contribution by the merchandiser exports.

Answer: D

Explanation:

In 2008/09, foreign exchange income earned income service providers such as Ethiopian Airlines and
Ethiopian Shipping Lines, as well as from various service sub-sectors such. as tourism, communication,
insurance and financial services, collectively reached nearly 12 billion dollars, when compared to just 1.5
billion dollars for the export of goods.

60. The transport sector in Ethiopia

A. it was more deregulated under the Derg regime than the EPRDF.
B. plays insignificant role. in economic growth and development.
C. can be considered as a well-developed sector in rural part of the country.
D. was under a state control during the Derg regime.

Answer: D

Explanation:

The transport facilities are underdeveloped and most rural areas are inaccessible by commercial
transport

. The transport sector plays an important role in economic growth and development. . During the
Military Government, the entire commercial trucks and passenger transport system was under strict
control of the government through Proclamation No. 107/1976.

61.Balance of trade commonly refers to

A. the difference between the amount of foreign currency received on account of exports and the
payment made for imports in a year.
B. the goods and services that enter into O a country in the form of purchase and services other
countries in a year.
C. the value of exports plus the Value of imports during a given year.
D. the goods and services that leave the country's frontiers in the form of sales in a year.

Answer: A

Explanation:

Trade balance refers to the difference between the export and import of goods and services.
. If the difference is positive, it is called a trade surplus,

. It is negative it is called a trade deficit.

62.In a fixed exchange rate system if there is disequilibrium in the balance of payments, causing excess
demand for hard currency, the central bank of the country has to

A. buy the required quantities foreign exchange to eliminate the excess demand.
B. buy the required quantities of foreign O exchange to eliminate the excess supply.
C. sell the required quantities of foreign exchange to eliminate the excess demand.
D. sell the required quantities of foreign exchange to eliminate the excess supply.

Answer: C

Explanation:

To maintain a desired exchange rate, the central bank during a time of private sector net demand for the
foreign currency, sells foreign currency from its reserves and buys back the domestic money.

• This creates an artificial demand for the domestic money, which increases its exchange rate value.

. In case is disequilibrium in the balance of payments, causing excess demand of foreign exchange, the
central bank of the country has to sell the quantities of foreign exchange required to eliminate the
excess demand.

63.In a floating exchanges rate system if the exchange rate is above the equilibrium level there is excess

A. demand and the exchange rate should rise.

B. supply and the exchange rate should rise.
C. demand and the exchange rate should fall.
D. supply and the exchange rate should fall.

Answer: A

Explanation:

Flexible exchange rates serve to adjust the balance of trade.

. When a trade deficit occurs in an economy with a floating exchange rate, there will be increased
demand for the foreign(rather than domestic) currency which will increase the price of the foreign
currency in terms of the domestic currency.

In case of deficit BOP of a country, demand for foreign currency will increases. As a result, exchange rate
will go up implying depreciation of domestic.

64.A contractionary fiscal policy could include

A. a decrease in corporation tax.

B. a decrease in discretionary government spending.
C. lower interest rates.
D. increased lending by banks.
Answer: A

Explanation:

Instruments of contractionary fiscal policy

area:

. Reduce expenditure

. Increase taxes

Government should resort to large scale public borrowing to absorb excess money from the public

65. Which one of the following is NOT an instruments expansionary monetary policy?

A. Lowering Cash Reserve Ratio (CRR)

B. Selling securities and bonds to commercial banks
C. Lowering bank discount rate
D. Buying government bonds and securities from commercial banks

Answer: B

Explanation:

Instruments of expansionary monetary

policy are:

. Bank Rate (Reduce it)

Buy securities

. Cash-Reserve ratio (Reduce CRR)

66. Which one of the following may give rise for a cost-push inflation?

A. Increase in money supply-due to deficit financing

B. Increases in wages and price of raw materials
C. Economic growth (increase in per capita of income of individuals in a given society)
D. Rapid population growth

Answer: D

Explanation:

Cost-push inflation occurs when factors such as rapid increases in the prices of imported raw materials
drive up per-unit production costs at each level of output; higher costs push the price level upward.

67.A devaluation of the Ethiopian Birr may have inflationary consequences in the Ethiopian Economy
mainly because it

A. increases the costs of imported goods.

B. discourages exports.
 C. increases the costs of exports.
D. decreases the international competitiveness of Ethiopian producers.

Answer: A

Explanation:

A decrease in the value of the currency of a country in terms of foreign currency:

. Makes its imports costlier (for the local buyers) and exports cheaper (for the foreign buyers).

. Imports decrease and exports increase, thus leading to a trade surplus or favorable balance of
payments.

68. Which of the following is a capital expenditures of the government budget?

A. Salaries of civil servants

B. Purchase of machineries
C. Pension payments
D. Repayments of public debts

Answer: B

Explanation:

Capital Budget Category includes:

Economic development which includes production activities in all sectors of the economy.

• General development such as services in statistics, cartography and public and administrative
buildings.

69. The primary use of national income accounting is to

A. measure the value of goods and services produced in an economy in a year.

B. present yearly data that can be understood only by accountants.
C. assess the economic efficiency of specific industries in an economy in a year.
D. determine whether there is a fair and equitable distribution of income in an economy in a year.

Answer: A

Explanation:

National income accounts are very useful for measuring economic growth and formulating economic
policies.

70.Which one of the following is fundamentally true?

A. Real GDP controls for changes in population.

B. Real GDP controls for changes in prices.
C. Nominal GDP is always larger than real GDR.
 D. Real GDP is always larger than Nominal GDP.

Answer: b

Explanation:

Read GDP is affected be only one factor, change in physical output because prices are fixed or constant.
Thus real GDP can rise only when there is a rise in physical output during a year.

Questions 71 --75 are to be attempted by the sighted candidates only.

71.Assume firms' total cost of producing 8 units of output is 160 Birr with average fixed costs of 2 Birr.
The firm's average variable are equal to

A. 2 Birr per units

B. 4 Birr per units
C. 18 Birr per units
D. 20 Birr per units

Answer: C

Explanation:

Given Q =8 units, TC = 160 Birr, AFC = 2 Birr Required: AVC

Solution: AC TC/Q=*160

AC 20

AC=AVC + AFC

AVC = AC - AFC = 20-2=18 OR

AFC = TFC/Q

TFC = AFC*Q

TFC= 2*8=16

TC= TCF + TVC

TVC=TC-TFC

TVC =160-16=144

AVC=TVC/Q

AVC= 144/8 = 18

72.Suppose the average product of 8 workers is 750 units of a product and that of 9 workers is 756 units.
The Marginal product of the ninth worker equals

A. 600
B. 6804
C. 804
 D. 6

Answer: C

Explanation:

Given AP =750, AP, = 756 Required: MP,=?

Solution

AP = TP/L

TP8-XL = 750 x 8 = 6000

TP9=AP9, XI= 756 x 9 = 6804

= 6804 - 6000

MP9 = TP9- TP= 804

73.A firm's total cost function is given by: TC =300-6Q + 4Q2 Where TC refers to total cost in Birr and Q
refers to quantity produced in Kilograms. When Q =4, the marginal and average variable costs are

A. 10 and 16 Birr per kilogram respectively.

B. 12 and 16 Birr per kilogram respectively.
C. 10 and 26 Birr per kilogram respectively.
D. 26 and 10 Birr per kilogram respectively.

Answer: D

Explanation:

Given TC= 300 - 6Q + 4 Q2, Q=4

Required: MC and AVC

Solution

MC= ATX/Q=-6+8Q

MC=-6+8+4

MC=-6+32= 26

AVC=TVC/Q = - 6Q + 4Q2/Q

AVC= -6 + 4Q = -6 + 4 x 4 = -6 +16=10

Consider the following short run production function where capital is assumed to be constant and
answer Questions of 74 and 75. Q = 8L2 -0.2L3 Where Q refers to output and L refers to labor

74.The value of labor the maximizes average products is

 A. 7.5
B. 10
C. 20
D. 15

Answer: C

Explanation:

Given: Q = 8L2 -0.2L3

Required: labor that maximizes AP

Solution

Q= 8L2 -0.2L3

AP= Q/L

AP= 8L2-0.2L/L

AP= 8L-0.2L3

To get maximum AP equate fist derivation of AP to zero.

dAP= 8L -0.2L3

dAP= 8-0.4L

8 = 0.4L 20

75.The approximate value of labor that maximizes marginal products is

A. 15
B. 20
C. 10
D. 13

Answer: D

Explanation: Solution

Q = 8L2-0.2L3

MP = AQ / AL

dMP=16-1.2L 16-1.2L=0

16= 1.2L=13

Questions 76-80 are to be attempted by the visually impaired candidates only.

76. Which one of the following is true on the relationship between the average anda marginal costs in
short - run?
 A. When variable average cost is at a O minimum, marginal cost lies above average variable cost.
B. When variable average cost is at a maximum, marginal cost lies, above average variable cost.
C. Whenever marginal cost lies below average variable cost, the average variable cost curve rises
D. Whenever marginal cost lies above average variable cost, the average variable cost curve
increases.

Answer: D

Explanation:

The relationship between productivity curves and cost curves is:

. The marginal - cost (MC) curve cuts through the average-total-cost (ATC) curve and the average-
variable-cost (AVC) curve at their minimum points.

. When MC is below average total cost, ATC falls

. When MC is above average total cost, ATC rises.

. When MC is below average variable cost, AVC falls

. When MC is above average variable cost, AVC rises.

77. Which of the following relationship holds true?

A. When Marginal Product of labor starts O falling, marginal cost of labor begins rising.
B. When Marginal Product of labor is at O its minimum, marginal cost of labor is at its tilling.
C. When Marginal Product of labor is Orising, marginal cost of labor is also rising.
D. When marginal Product of labor is at O its maximum, marginal cost of labor is at its falling.

Answer: A

Explanation:

The relationship between productivity curves and cost curves is:

. The marginal-cost (MC) curve and the average-variable-cost (AVC) curve in are minor images of the
marginal-product (MP) and average-product (AP) curves

. Assuming that labor is the only variable input and that its price (the average rate) is constant, then

. when MP is rising, MC is falling . when MP is falling, MC is rising . when AP is rising, AVC is rising when
AP is falling, AVC is rising

. when MP is maximum, MC is minimum

78. To prevent a firm shutting down in the short run it must

A. Cover only fixed costs.

B. Cover both fixed and variable costs
C. Ensure that it 'breaks even'
D. Cover only variable costs.
Answer: D

Explanation:

When the market price is below the

minimum average variable cost, the price the firm receiver per unit is covering its variable cost per unit.

• A firm in this situation should cease production immediately. Because there is no level of output at
which the firm's total revenue covers its variable- the cost it can avoid by not operating.

• In this case the firm maximizes its profit by not producing at all. It will still incur a fixed cost in the
short run, but it will no longer incur any variable cost.

• This means that the minimum average variable cost determines the shut-down price the price at which
the firm ceases production in the short run.

79.To fight inflation, government or the central bank should not do one of the following

A. Conducting open market sale

B. Conducting open market purchase
C. Increasing discount interest rate
D. Managing the required reserve ratio

Answer: B

Explanation:

During inflations:

• The central bank sells government securities to commercial banks

• During inflation, the central bank increases the CRR

• In a situation of excess demand leading to inflation, the central bank raises the bank rate.

80.Assume a German tourist visits an obelisk in Axum city; and hires a local taxi, rents a room for a
couple of days in Ezana hotel, and eats meals in this hotel. Given this statement, which one of the
following is NOT true?

A. The goods and services consumed by the German tourist are counted as part of Ethiopia's GNP.
B. The goods and services consumed by the German tourist are counted as part of Germany's GNP.
C. The goods and services consumed by the German tourist are counted as part of Ethiopia's GDP.
D. The goods and services consumed by the German tourist are considered as export items for
Ethiopia.

Answer: C

Explanation:

Goods and services produced within a nations boundaries by foreign citizens and firms are excluded
from GNP. The value of each payment of the German's tourists in Axum city is early count as part of
Ethiopia GDP because the payments are made within the borders of an Ethiopia.