OROMIA EDUCATION BUREAU SECONDARY SCHOOL PROGRAM

GRADE 12 SECOND ROUND ECONOMICS MODEL EXAM FOR SECONDARY, BOARDING AND NON-
BOARDING SPECIAL SCHOOLS STUDENTS.
GIMBOT 2017/MAY 2025
TIME ALLOWED 2:30
GENERAL DIRECTIONS
THIS EXAM PAPER CONTAINS ECONOMICS EXAMINATION. IN THIS EXAMINATION, THERE ARE A

TOTAL OF 80 MULTIPLE CHOICE QUESTIONS. CAREFULLY SELECT THE BEST ANSWER AND

BLACKEN ONLY THE LETTER OF YOUR CHOICE ON THE SEPARATE ANSWER SHEET PROVIDED.

FOLLOW THE INSTRUCTIONS ON THE ANSWER SHEET AND THE EXAMINATION PAPER

CAREFULLY.

USE ONLY PENCIL TO MARK YOUR ANSWERS; YOUR ANSWER MARK SHOULD BE HEAVY AND

DARK, COVERING THE ANSWER SPACE COMPLETELY. PLEASE ERASE ALL UNNECESSARY MARKS

COMPLETELY FROM YOUR ANSWER SHEET.

YOU ARE ALLOWED TO WORK ON THE EXAM FOR 150 MINUTES. WHEN TIME IS CALLED, YOU

MUST IMMEDIATELY STOP WORKING, PUT YOUR PENCIL DOWN, AND WAIT FOR FURTHER

INSTRUCTIONS.

ANY FORM OF CHEATING OR AN ATTEMPT TO CHEAT AS WELL AS USING CELLPHONE IN THE

EXAMINATION HALL WILL RESULT IN TO THE CANCELLATION OF YOUR SCORE(S).

PLEASE MAKE SURE THAT YOU HAVE WRITTEN ALL THE REQUIRED INFORMATION ON THE

ANSWER SHEET BEFORE YOU START TO WORK ON THE EXAMINATION.

DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO!!

 OROMIA EDUCATION BUREAU SECOND ROUND GRADE 12 ECONOMICS MODEL EXAM FOR
SECONDARY, BOARDING AND NON- BOARDING SPECIAL SCHOOLS STUDENTS, 2017/2025.

DIRECTIONS: EACH OF THE FOLLOWING QUESTIONS IS FOLLOWED BY FOUR POSSIBLE

ALTERNATIVES. READ EACH QUESTION CAREFULLY AND WRITE THE LETTER OF YOUR BEST
CHOICE ON SEPARATE ANSWER SHEET PROVIDED.
1. Which of the following is centrally concerned with macroeconomic issues?
A. Decreasing unemployment. C. reducing the price of coffee.
B. Increasing deflation. D. increasing household income.
2. Suppose that Ethiopians who own apartments in New York earn rental income for their building. Then which one
of the following is False about this income?
A. This income is subtracted from receipts of factor income from Ethiopia.
B. This income earned is included in USA GDP but not in the GNP of USA.
C. This income earned is included in GNP of Ethiopia but not GDP of Ethiopia.
D. This income is subtracted from receipts of factor income from USA.
3. Which one of the following is used to measure country's standard of living?
A. Unemployment rate C. Human Development Index
B. Consumer Price Index D. Inflation rate
4. The basic distinction between frictional unemployment and cyclical unemployment among the following is:
A. Frictional unemployment is long-term; cyclical unemployment is short-term.
B. Frictional unemployment is temporary; cyclical unemployment is due to economic downturns.
C. Frictional unemployment is due to skill mismatch; cyclical unemployment is seasonal.
D. Frictional unemployment is permanent; cyclical unemployment is voluntary.
5. The type of inflation that is occurred when prices rise rapidly at the rate of 10% to 20% per year is:
A. Creeping C. Running
B. walking D. Galloping
6. A graduate with an engineering degree cannot find a job in their field. What type of unemployment is this?
A. Frictional unemployment C. Cyclical unemployment
B. Disguised unemployment D. Structural unemployment
7. The labour force participation rate is:
A. The percentage of the adult population that is in the labour force.
B. The percentage of total population that are in adult age bracket.
C. The sum of employed and unemployed populations.
D. The percentage of labour force that is in adult age bracket.

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8. Which one of the following is not component of current account?

A. Countries export and import of goods and services C. Transfers.
B. Private and public net remittance D. The volume of private foreign investment
9. What can be inferred if GNP is less than GDP in a country?
A. The country pays more to foreigners than it earns from abroad.
B. The country has no foreign trade.
C. The country earns more from abroad than it pays to foreigners.
D. The country has full employment.
10. How does full employment as a macroeconomic goal relate to unemployment types?
A. It reduces cyclical unemployment significantly C. It increases structural unemployment
B. It eliminates frictional unemployment only D. It eliminates disguised unemployment entirely
11. A phase of business cycle characterized by increasing employment, economic growth, and upward pressure on
prices is:
A. Depression C. Boom
B. Recovery D. Recession
12. An economy-wide fluctuations in production, trade, and general economic activities is commonly known as:
A. Trade cycle C. Economic growth
B. Inflation D. stagflation
13. Which of the following is NOT a feature of Keynesian school of macroeconomic analysis?
A. Short run C. Fiscal policy
B. Wage price flexibility D. Underemployment equilibrium
14. If a country experiences a rise in wage rates, what is the most likely effect on the Short run aggregate supply curve?
A. The Short run aggregate supply curve shifts to the right
B. There is no effect on the Short run aggregate supply curve
C. The Short run aggregate supply curve shifts to the left
D. The Short run aggregate supply curve becomes horizontal
15. Among the following, which one differentiates change in quantity of real GDP demanded from change in Aggregate
demand?
A. As the price level falls, the quantity of real GDP demanded rises ceteris paribus.
B. It is represented as a movement from one point to another along different aggregate demand curve
C. A positive change in any factors causes a right ward shift in aggregate demand curve.
D. It is a shift in demand curve from AD1 to AD2 on different curve

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16. In the model of aggregate demand and aggregate supply, the initial impact of an increase in consumer optimism is to:
A. Shift the short-run aggregate supply curve to the left.
B. Shift the aggregate demand curve to the right.
C. Shift the short-run aggregate supply curve to the right.
D. Shift the aggregate demand curve to the left.
17. Which one of the following represents the increase in the quantity of real GDP demanded due to increase in price
level?
A. The right ward shift of demand curve C. The downward movements along the demand curve
B. The left ward shift of demand curve D. The upward movements along the demand curve
18. When an economy experiences a negative supply shock, what happens to the price level and real GDP?
A. Price level falls, and real GDP increases C. Price level rises, and real GDP decreases
B. Price level falls, and real GDP decreases D. Price level remains unchanged, and real GDP increases
19. The economy is in equilibrium when:
A. Aggregate demand equals aggregate supply C. Consumer spending equals business investment
B. Government spending is equal to net exports D. Wages and prices remain unchanged
20. If the government increases taxes, the likely effect on aggregate demand curve is:
A. A rightward shift C. No change
B. A leftward shift D. A vertical movement
21. The wealth effect in the AD-AS model explains that:
A. When prices rise, the purchasing power of wealth declines, reducing consumption
B. An increase in wages leads to higher productivity
C. Government intervention is needed to manage demand shocks
D. Higher inflation benefits economic growth
22. Which one of the following is possible limitation of Coase's solution to externalities?
A. It assumes no property rights exist
B. It works only if there are no transaction costs and the parties can easily negotiate
C. It is most effective in solving positive externalities
D. It is less effective in markets with few players
23. Adverse selection in insurance markets typically occurs when:
A. Employers insist on a single plan for all clients.
B. Consumers have better information on their health than do insurers.
C. Insurers have better information on their health than do consumers.
D. Employees choose to self-insure.

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24. Adverse selection is a market failure resulting from:

A. Hidden actions after a transaction. C. Excessive competition.
B. Hidden information before a transaction. D. Government price controls
25. Providing subsidies for education is often justified on the grounds of:
A. Negative externalities in consumption. C. The free-rider problem.
B. Positive externalities in consumption. D. Adverse selection in the education market.
26. When does a currency's value appreciate under a floating exchange rate system?
A. When market demand for the currency increases C. When inflation increases
B. When the government sets a higher exchange rate D. When there is a large trade deficit
27. Which of the following is an example of a grant in aid in fiscal policy?
A. Federal assistance to local governments C. Transfer payments to citizens
B. Tax incentives for businesses D. Corporate tax exemptions
28. Access to the broadcast signal from a radio station is:
A. A private good, but the station itself is a public good.
B. A public good, but the station itself is a private good.
C. Both the radio station and broadcast signal are private goods.
D. Both the radio station and broadcast signal are public good
29. Which of the following best describes the concept of "internalizing" an externality?
A. The government taxing consumers to reduce demand and benefits into the decision-making process
B. Changing behaviour by incorporating the external costs or benefits into the decision-making process
C. Allowing producers to freely increase production without regulation and changing behaviour.
D. Ignoring the social effects of consumption and production and reducing costs.
30. How do asymmetric information and moral hazard contribute to market failure?
A. They lead to better-informed decisions in the market
B. They allow all participants to make optimal choices
C. They distort incentives and lead to inefficient outcomes
D. They create perfect competition in the market
31. Support price of agriculture products is the example of:
A. Price Ceiling C. market price
B. price Floor D. Price Discrimination
32. What is the main goal of income policy?
A. To control inflation C. To control wages and prices
B. To regulate government spending D. To increase productivity

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33. Under Ethiopia's tax Schedule C, business income tax is levied on:
A. Gross sales revenue. C. Net profit.
B. Total assets of the business. D. The number of employees.
34. A tax where the impact and incidence fall on the same person is called a(n):
A. Indirect tax C. Direct tax
B. Value Added Tax (VAT) D. Excise tax
35. Which principle of taxation suggests that taxes should be clear, plain, and not arbitrary?
A. Equity C. Convenience
B. Economy D. Certainty
36. If the average tax rate increases as income increases, the tax structure is:
A. Regressive C. Progressive
B. Proportional D. Indirect
37. Value Added Tax (VAT) in Ethiopia is primarily classified as a(n):
A. Direct tax on income. C. Tax on wealth.
B. Indirect tax on consumption. D. Tax on exports.
38. Illegally underreporting income to pay less tax is known as:
A. Tax avoidance C. Tax evasion
B. Tax shifting D. Tax incidence
39. The Turnover Tax (TOT) in Ethiopia applies mainly to:
A. Large corporations registered for VAT. C. All individual employees.
B. Businesses below the VAT threshold. D. Imported luxury goods.
40. Using loopholes and legal deductions to minimize one's tax liability is:
A. Tax evasion and illegal. C. Tax avoidance and generally legal.
B. Tax avoidance and illegal. D. Tax evasion and generally legal.
41. Customs duties are taxes levied on:
A. Property values. C. Imported and sometimes exported goods.
B. Business profits earned domestically. D. Financial transactions.
42. What could be a possible consequence of a regressive tax system?
A. The rich will pay more than the poor
B. Low-income individuals will bear a heavier tax burden
C. There will be no taxes on luxury goods
D. Taxes will be collected equally from all sectors

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43. Which tax principle is most directly related to the concept of vertical equity?
A. Certainty C. Ability-to-Pay
B. Convenience D. Economy
44. To address the issue of tax evasion, the Ethiopian government could:
A. Provide more tax exemptions C. Lower the taxes on imported goods
B. Introduce harsher penalties for evasion D. Reduce public sector investment
45. The Poverty Headcount Index measures:
A. The average income of the poor.
B. The total amount of money needed to eliminate poverty.
C. The percentage of the population living below the poverty line.
D. The degree of income inequality among the poor.
46. The Lorenz Curve graphically represents:
A. The relationship between inflation and unemployment. C. The total poverty gap over time.
B. The distribution of income across population percentiles. D. The different types of market failure.
47. The feminization of poverty refers to the observation that:
A. Women generally have higher life expectancy than men.
B. Poverty rates tend to decline when women enter the workforce.
C. Women and children represent a disproportionately high percentage of the world's poor.
D. Development programs historically focused too much on women.
48. In Ethiopia, Idir is a traditional institution primarily associated with:
A. Rotating savings and credit. C. Providing support during bereavement.
B. Communal farm labour. D. Resolving land disputes.
49. Measuring income distribution based on how income is divided among wages, rent, interest, and profit is:
A. Personal or size distribution. C. Gini distribution.
B. Functional or factor share distribution. D. Quintile distribution.
50. The Multidimensional Poverty Index (MPI) differs from income-based measures because it:
A. Focuses only on relative poverty.
B. Uses the Gini coefficient as its base to calculate standards of living.
C. Considers deprivations across multiple dimensions like health, education, and living standards simultaneously.
D. Is only calculated for developed countries dimensions like health, education, and living standards

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51. A potential limitation of using the Headcount Index as the sole measure of poverty is that it:
A. Is too difficult to calculate.
B. Does not account for the depth or severity of poverty among those below the line.
C. Only measures relative poverty, not absolute poverty.
D. Requires data that is typically unavailable in developing countries.
52. Sustainable development is best defined as:
A. Maximizing economic growth without compromising future generations' ability to meet their needs.
B. Development that meets present needs without compromising future generations' ability to meet their needs.
C. Protecting the environment regardless of compromising future generations' ability to meet their needs.
D. Focusing solely on development regardless of compromising future generations' ability to meet their needs.
53. What is the significance of the Poverty Reduction Strategy Paper (PRSP) process?
A. It helps countries systematically think about and address poverty
B. It aims to increase poverty in developing countries
C. It is a process to distribute income equally across nations
D. It only focuses on financial aid from rich countries
54. If the Lorenz curve for a country is very bowed out, what does it suggest about income distribution?
A. The country has a very equal income distribution
B. The country has a very unequal income distribution
C. The country’s poverty rate is very low
D. The country is in a state of economic crisis
55. What is a potential disadvantage of using the Gini coefficient to measure inequality?
A. It may not account for the actual level of poverty in a society
B. It focuses only on the wealth of the poorest individuals
C. It cannot measure changes in inequality over time
D. It is difficult to calculate and understand
56. The Imperial Period (1950-1974) economic policies in Ethiopia focused on:
A. State-controlled enterprises and collectivization
B. Free-market capitalism
C. Heavy industrialization with minimal government support
D. Digital and green energy development
57. Which development plan shifted focus to address food shortages during the Imperial Period?
A. First Five-Year Plan C. Third Five-Year Plan
B. Second Five-Year Plan D. Fourth Five-Year Plan

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58. What was the primary focus of the Third Five-Year Development Plan (1968-73) under the Monarchy?
A. Agricultural development C. Infrastructure expansion
B. Industrialization D. Market liberalization
59. The Derg regime (1974-1991) in Ethiopia was characterized by:
A. A market-led, export-oriented economy.
B. Minimal government intervention in the economy.
C. Strong promotion of private commercial agriculture.
D. A centrally planned, socialist economic system.
60. What was a key objective of the Plan for Accelerated and Sustained Development to End Poverty (PASDEP)?
A. Achieving the Millennium Development Goals (MDGs) C. Establishing a socialist economy
B. Reducing public sector involvement D. Promoting import substitution
61. The Growth and Transformation Plans (GTPs) were designed to:
A. Promote rapid economic growth and industrialization C. Increase dependency on agricultural exports
B. Decrease infrastructure development D. Reduce foreign trade
62. Ethiopia's economic reforms aim to:
A. Reduce government intervention in all industries
B. Enhance economic growth, reduce poverty, and stabilize inflation
C. Increase trade barriers and discourage foreign investment
D. Eliminate government spending
63. Which one of the following long-term national goals was initiated to be achieved by the Home-Grown Economic
Reform (HGER)?
A. Becoming a regional trade hub C. Eliminating foreign aid dependency
B. Making Ethiopia an African beacon of prosperity D. Transition to a socialist economy
64. What is the major challenge of macroeconomic reforms in Ethiopia?
A. Excessive reliance on the technology sector
B. A lack of agricultural production
C. High inflation, unemployment, and foreign exchange shortages
D. Overproduction in the manufacturing sector
65. Among the following one is NOT a strategic pillar of the 10-Year Development Plan (2021-2030).Which one is
it?
A. Gender and Social Inclusion C. Rapid Urbanization
B. Sustainable Development Financing D. Quality Economic Growth

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66. The Ethiopian macroeconomic reform agenda primarily aims to:

A. Strengthen state control over all industries C. Halt international trade agreements
B. Promote private sector-led economic growth D. Reduce domestic entrepreneurship
67. A common challenge across Ethiopia’s development plans among the following is:
A. Increasing trade deficits C. Eliminating inflation completely
B. Reducing agricultural output D. Ensuring equitable benefits from growth
68. During the GTP I and II periods, which sector contributed the most to Ethiopia’s GDP growth?
A. Agriculture C. Services
B. Manufacturing D. Construction
69. Fiscal decentralization in Ethiopia aims to improve:
A. Centralized tax systems C. National budget deficits
B. Efficiency in resource allocation D. Foreign exchange reserves
70. Climate change adaptation generally described as:
A. Actions taken to reduce greenhouse gas emissions.
B. Adjusting to the actual or expected impacts of climate change.
C. The scientific study of past climates.
D. International agreements on emission targets.
71. Why does Developing countries often considered highly vulnerable to climate change?
A. Their high historical contribution to greenhouse gas emissions.
B. Their strong industrial base which is sensitive to temperature changes.
C. Their high dependence on climate-sensitive sectors.
D. Their location primarily in cold, high-latitude regions.
72. Which of the following is a potential measure used for the mitigation of climate change?
A. Building sea walls to protect against rising sea levels.
B. Developing drought-resistant crop varieties.
C. Reducing greenhouse gas emissions or enhancing carbon sinks.
D. Providing disaster relief after extreme weather events.
73. Climate Resilient Green Economy (CRGE) strategy of Ethiopia aims to:
A. Achieve middle-income status through carbon-intensive industrialization.
B. Separate economic growth entirely from environmental concerns.
C. Achieve economic development goals through a low-carbon, climate-resilient pathway.
D. Focus solely on climate adaptation, ignoring mitigation.

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74. Primarily deforestation contributes to climate change by:

A. Increasing the atmosphere's oxygen content.
B. Reducing the Earth's capacity to absorb carbon dioxide.
C. Causing immediate global cooling through increased cloud cover.
D. Directly increasing methane emissions from decaying wood.
75. In climate change policy, the concept of mitigation is fundamentally about:
A. Helping communities cope with unavoidable climate impacts.
B. Reducing the causes of climate change.
C. Investing in early warning systems for extreme weather.
D. Calculating the economic cost of climate damage.
76. An economy produces only Wheat and Maize. In Year 1, it produces 100 quintals of Wheat at 2000 Birr/quintal
and 50 quintals of Maize at 5000 Birr/quintal. In Year 2, it produces 110 quintals of Wheat at 2200 Birr/quintal
and 50 quintals of Maize at 4000 Birr/quintal. Using Year 1 as the base year, what is the approximate Real GDP
in Year 2?
A. 400,000 Birr C. 445,000 Birr
B. 442,500 Birr D. 470,000 Birr
77. A census that was conducted in particular economy shows that the total adult population is 20 million and those
who are willing and able to work is 4 million and out of these the total number of unemployed is 3 million. What
is the labour force participation rate and employment rate respectively in this economy?
A. 5% & 45% C. 20% & 25%
B. 10% & 55% D. 15% & 35%
78. Suppose that a producer of a commodity N is located on the upstream of river Awash. The TC of producing N is
given by the function TC=20N + 0.5N2. In addition to this TC the firm also incurred external cost. Each unit of
product produces a pollutant that flows to the river, which causes damage valued at birr 10. Suppose that this
external cost is borne by the wider community rather than by the polluting firm. The TR obtained from each unit
of N is given by TR=40N – 2N2. Derive profit maximization level of output for N and social net benefit for N
respectively?
A. 4 and 2 units C. 2 and 5 units
B. 4 and 5 units D. 6.33 and 5 units

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79. A chemical plant's production yields a Marginal Private Cost (MPC) of MPC = 10 + Z. The process creates
pollution with a Marginal External Cost (MEC) of MEC = 20. Market demand is P = 200 - Z. What is the per-unit
Pigouvian tax needed to achieve the socially optimal output level and maximum amount of socially optimum
level of output respectively?

A. 5 Birr and 65 unit C. 15 Birr and 75 unit

B. 10 Birr and 95 unit D. 20 Birr and 85unit
80. A tax rate and net income for an employee with a monthly income of 5000 birr respectively is:
A. 10% & 697.5birr C. 20% & 4,302.5 birr
B. 15% & 4,392.5 birr D. 25% & 4,315 birr

THE END!

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