Debre Birhan University

College of Agriculture and Natural resource science

Department of Agricultural Economics
Preset Macroeconomics II Questions for Exit exam
1. Which one of the following are not macroeconomic variables?
a. General price levels
b. Fiscal and monetary policies of the government
c. Trade balance and balance of payments
d. all
2. What is the main cause of study of macro Economics?
a. To attaining the maximum satisfaction of human material wants
b. To determine income
c. To analysis the effect of gov.t policy on income
d. all
3. ______________Is an systematic record of the level of economic activities of an
economy.
a. National Income Accounting
b. Gross Domestic Product
c. Gross National Product
4. Which of the following method is not used in determining National Income of a
country?
a. Income Method
b. Investment Method
c. Output Method
d. Input Method
5. To know the potential purchasing power of the household sector, we make use of the
concept of:
a. Disposable Income
b. National Income
c. Personal Income

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 d. Private income
6. Which one of the following forms the largest share of deficit of Government of India
Budget?
a. Primary deficit
b. Fiscal deficit
c. Budgetary deficit
d. Revenue deficit
7. The difference between total expenditure and total receipts is called:
a. Fiscal deficit
b. Revenue deficit
c. Budget deficit
d. Primary deficit
8. If Fiscal Policy is trying to promote stability and economic growth through tax cuts,
what type of policy is Fiscal policy using?
a. Tight Money Policy
b. Ease Money Policy
c. Expansionary Fiscal Policy
d. Restrictive Fiscal Policy
9. Fiscal Policy is connected with:
a. Policy of agriculture
b. Public revenue & expenditure
c. Policy of population
d. Policy of industry
10. What actions government should take on its overall expenditure to check inflating
forces”
a. Increase expenditure on necessities
b. No change in expenditure
c. Reduce expenditure
d. Increase expenditure
11. Most economists believe that the immediate determinant of output and employment is
a. a decline in the Dow Jones Industrial Average
b. an increase in the costs of production
c. a change in total spending

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 d. the development of new technology
12. Which of the following is the correct definition of Fiscal Deficit
a. Difference between Government's Expenditure and Revenue minus taxes
b. Difference between Government's Expenditure and Revenue minus loans
c. Difference between Government's Expenditure and Revenue
d. Difference between Government's Expenditure and Revenue minus subsidies
13. Fiscal policy refers to:
a. Decisions to alter market interest rates
b. Control of the producer price index
c. Control of the money supply
d. Government spending and taxation decisions
14. Monetary policy consists of:
a. Checking commercial banks
b. Printing of money
c. Changing total money supply
d. Decreasing taxes
15. This is the Government’s strategy in respect of public expenditure and revenue which
have a significant Impact on business:
a. Monetary policy
b. Foreign exchange policy
c. Fiscal Policy
d. Trade policy
16. Which of the following is not a reason for inflation?
a. Increase in cost of capital
b. More dependence on indirect taxes for revenue
c. Increase in administered prices
d. None of the above
17. The value of plant and equipment worn out in the process of manufacturing goods
and services is measured by
a. Intermediate production.
b. Net National Product.

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 c. Investment.
e. Depreciation.
a. Consumption.
18. Which of the following statements regarding taxes is correct?
a. Most economists believe that, in the short run, the greatest impact of a
change in taxes is on aggregate supply, not aggregate demand.
b. An increase in taxes shifts the aggregate demand curve to the right.
c. A decrease in taxes shifts the aggregate supply curve to the left.
d. A permanent change in taxes has a greater effect on aggregate demand than
a temporary change in taxes.
19. If the marginal propensity to consume MPC is 0.75, the value of the multiplier
is
a. 4
b. 7.5
c. 5
d. 7
e. None
20. In the market for real output, the initial effect of an increase in the money supply is to
a. Shift the aggregate supply curve to the right.
b. Shift the aggregate supply curve to the right.
c. Shift the aggregate demand curve to the left.
d. shift the aggregate demand curve to the right
21. An increase in the marginal propensity to consume (MPC)
a. Raises the value of the multiplier.
b. Has no impact on the value of the multiplier.
c. Rarely occurs because the MPC is set by congressional legislation.
d. Lowers the value of the multiplier.
22. Suppose a wave of investor and consumer optimism has increased spending so that the
current level of output exceeds the long-run natural rate. If policy makers choose to
engage in activist stabilization policy, they should
a. Decrease government spending, which the shifts the aggregate demand curve to

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 the left.
b. Decrease taxes, which shifts the aggregate demand curve to the right.
c. Decrease taxes, which shifts the aggregate demand curve to the left.
d. Decrease government spending, which shifts the aggregate demand curve to the
right
23. The initial effect of an increase in the money supply is to
a. Increase the interest rate.
b. Increase the price level.
c. Decrease the price level.
d. Decrease the interest rate.
24. 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.
25. Suppose a wave of investor and consumer pessimism in the Ethiopia causes
a reduction in spending. If the Ethiopia Federal Reserve (which has a broader
remit than the Bank of Ethiopia which is charged only with controlling
inflation) chooses to engage in activist stabilization policy, it should
a . Increase government spending and decrease taxes.
b. Decrease the money supply.
c. Decrease government spending and increase taxes.
d. decrease interest rates
26. When an increase in government purchases raises incomes, shifts money
demand to the right, raises the interest rate, and lowers investment, we have
seen a demonstration of
a. Supply-side economics.
b. None of these answers.
c. The crowding-out effect.
d. The multiplier effect.

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 27. Keynes's liquidity preference theory of the interest rate suggests that the interest rate is
determined by
a. Aggregate supply and aggregate demand.
b. The supply and demand for loan able funds.
c. The supply and demand for money.
d. The supply and demand for labor.
28. The long-run effect of an increase in money supply
a. Increase the interest rate
b. Decrease the price level
c. Increase the price level
d. Decrease the interest rate
29. The initial effect of an increase in money supply is to
a. Increase the interest rate
b. Increase the price level
c. Decrease the price level
d. Decrease the interest rate
30. Ethiopia Gross Domestic Product (in contrast to Gross National Product) measures the
production and income of
a. Ethiopia -owned firms no matter where they are located in the world.
b. The domestic service sector only.
c. People and factories located within the borders of the Ethiopia.
d. The domestic manufacturing sector only
31. Stagflation occurs when the economy experiences
a. Rising prices and rising outputs
b. Rising prices and falling outputs
c. Falling prices and rising outputs
d. Falling prices and falling outputs
32. Gross Domestic Product can be measured as the sum of
a. Final goods and services, intermediate goods, transfer payments, and rent.
b. Consumption, investment, government purchases, and net exports.
c. Consumption, transfer payments, wages, and profits.

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 d. Net National Product, Gross National Product, and Disposable personal income.
e. Investment, wages, profits, and intermediate production.
33. If a country exports more than it imports?
a. Net exports are negative
b. Running a trade deficit
c. Net Capital outflow must be positive
d. Net capital outflow must be negative
34. Which of the following statements is true about a trade deficit country?
a. Net Exports are negative
b. Net Capital Outflow Must be Positive
c. Exports exceed imports
d. None of the above
35. An economy that interacts with other economies is known as
a. An export economy
b. A friendly economy
c. An open economy
d. An import economy
36. If the price rate doubles
a. The quantity demanded of money falls by half
b. The value of money has been reduced by half
c. Nominal income is unaffected
d. None of the above
37. When government spending exceed the amount of tax collected,
a. There is a budget deficit
b. There is a budget surplus
c. Private saving is positive
d. Public saving is positive
38. The opportunity cost of growth is?
a. Reduction in current saving
b. Reduction in current consumption
c. Reduction in Taxes

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 d. None of the above
39. Real GDP is measured in ________ prices while nominal GDP is measured in
________ prices.
a. Foreign; domestic
b. Current year; base year
c. Domestic; foreign
d. Base year; current year
e. Intermediate; final
40. If inflation is at 3% and the Nominal Interest rate is at 8%. What is the real rate of
interest?
a. 1%
b. 11%
c. 5%
d. None of the above
41. With an increase in the salary, the standard of living is likely to
a. Stay the same
b. Rise
c. Decline
d. Not Related
42. A logical measure of the Standard of Living in a country is?
a. Real GDP per person
b. Nominal GDP per person
c. Real GDP
d. Nominal GDP

43. Keeping other factors constant, if the Public consumes Rs 50,000 amount less and
Government spends Rs 50,000 amount more
a. Savings are unchanged
b. Increase in saving
c. Decrease in saving
d. Saving is finished
44. When the economy is at full employment
a. The unemployment rate is equal to the natural rate of unemployment, but not zero

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 b. Natural rate of unemployment is the unemployment that exists when actual GDP
is equal to potential GDP
c. There is no cyclical unemployment.
d. All
45. How do you use GDP?
a. Compare to previous years
b. Compare policy changes
c. Compare to other countries
d. All
46. Why do some countries have higher GDPs than others?
a. Technology
b. Knowledge
c. Human resource
d. Capital
e. All
47. Why is economics growth the goal of every society?
a. Provides better goods and services
b. Increase wages and standard of living
c. Economic can better meet wants
d. All of the above
e. None of the above
48. Macroeconomics studies the working of an economy in aggregation or as a whole and it
aimed at how;
a. To achieve low economic growth
b. To reduce employment
c. To attain unstable prices
d. To increase budget deficit and balance of payment (BoP) deficit
e. To ensure fair distribution of income

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 49. Why do we need to study National Income Accounting?
a. It enables us to measure the level of total output in a given period of time
b. Explain the causes for such level of performance.
c. It enables us to observe the long run trend of the economy.
d. It provides information to formulate policies and design plans.
e. All
50. __________is the value of all final goods and services produced in a given year when
valued at the prices of that year.
a. Nominal GDP
b. Real GDP
c. Nominal GNP
d. Real GNP
51. Consider an economy producing two goods, X and Y. Data for two different years
2021 and 2023 is given in the following table
Year Product Quantity Unit price ($)
2022 X 20 5
(base year) Y 8 50
2023 X 25 20
Y 10 100
Using the year 2021 as a base year,
a) Calculate the nominal and real GDP of 2023.
b) Find the value of GDP Deflator for the year 2023 and interpret.
c) Calculate the inflation rate in 2023.
General review question
1. What is the difference between GDP and GNP? Which one is a better measure of the
economic performance of a country?
2. . What is unemployment? How can we measure it?
3. What is inflation? What are its causes? What is its impact on the economy?
4. Discuss the three major differences between CPI and GDP deflator.
5. Consider the following information for a particular economy.
Total population = 120 million Number of employed = 60 million
Total labor force = 80 million Natural rate of unemployment = 24%

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 a) Find the total unemployment rate
b) Calculate the cyclical unemployment rate

Recommended reading materials

 Mankiw, G. (2000) Macroeconomics, 5th ed., Worth Publishing
 Dornbusch, R. and S. Fischer (1994) Macroeconomics, 2nd ed, New York: McGraw-Hill
International Edition.
 Pentecost, E. (2000), Macroeconomics: An Open Economy Approach, Macmillan Press
Ltd.
 Branson, W. (1989) Macroeconomic Theory and Practice, 3re ed., New York Harper &
Row Publishers.

Together you can !

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