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Grade 12 Economics model exam, 2018 E.C. (2026)

A model exam set in 2018 E.C. to prepare Grade 12 students for the Economics entrance exam, in the same format. It is practice, and it is not the entrance exam paper itself. Every question comes with the correct answer and a worked explanation.

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  • Social science stream

    Who sits it

  • 2018 E.C. model exam

    Exam year

  • 95 questions with answers

    In this set

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Answer each question yourself before opening the answer. The explanations point to the exact place in the textbook, so you know which page to reread when you miss one.

Question 1

As social science student which one of the following practices should be encourage the transformation of the rural economy in Ethiopia from agriculture to industry?

  1. A.Inappropriate or incorrect pricing policy towards agricultural products.
  2. B.Inappropriate or incorrect entitlement of land property
  3. C.Increasing prices of agricultural inputs
  4. D.Credit offerings at lower interest rates
Show the answer and explanation

Answer: D Credit offerings at lower interest rates

Why

Lower interest rate credit offerings encourage rural farmers to invest in improved technology, agricultural inputs, and small-scale industries, facilitating the transition from subsistence agriculture to more productive activities. Inappropriate pricing, insecure land rights, and expensive inputs hinder transformation.

Question 2

Which of the following correctly describes the difference between nominal GDP and real GDP?

  1. A.Nominal GDP is calculated using current prices, while real GDP is calculated using the current population.
  2. B.Nominal GDP is calculated using constant prices, while real GDP is calculated using constant population.
  3. C.Nominal GDP is calculated using current prices, while real GDP is calculated using constant prices.
  4. D.Nominal GDP is calculated using constant prices, while real GDP is calculated using current prices
Show the answer and explanation

Answer: C Nominal GDP is calculated using current prices, while real GDP is calculated using constant prices.

Why

Nominal GDP uses current year prices to value output, which includes the effects of inflation. Real GDP uses constant base-year prices, adjusting for inflation and allowing comparison of actual output across years. The correct formula is: GDPreal=GDPnominalPrice deflator×100GDP_{\text{real}} = \frac{GDP_{\text{nominal}}}{\text{Price deflator}} \times 100.

Question 3

Which of the following statement describes aggregate demand (AD)?

  1. A.The total expenditure by households on final goods and services in an economy
  2. B.The total spending by all sectors of an economy at different price levels
  3. C.The total quantity of goods supplied by individual firms in an economy
  4. D.The total income of households spends on final durable goods.
Show the answer and explanation

Answer: B The total spending by all sectors of an economy at different price levels

Why

Aggregate demand (AD) represents the total quantity of goods and services that all sectors of an economy (households, firms, government, and foreign buyers) are willing to purchase at different price levels during a given period. Option A only covers household consumption (C), not total AD which includes C + I + G + (X-M).

Question 4

Which statement best explains consumer equilibrium under Indifference Curve Analysis?

  1. A.When maximum income is achieved at higher level of production by firms
  2. B.When the budget line intersects the demand curve
  3. C.When the highest possible indifference curve is tangent to the budget line
  4. D.When the total utility becomes constant at various level of income
Show the answer and explanation

Answer: C When the highest possible indifference curve is tangent to the budget line

Why

Consumer equilibrium in indifference curve analysis occurs at the point where the budget line is tangent to the highest attainable indifference curve. At this tangency point, the slope of the indifference curve (MRS = MUx/MUy) equals the slope of the budget line (Px/Py), maximizing utility given income constraints.

Question 5

If the government imposes strict wage controls during a period of inflation, this measure is part of:

  1. A.Monetary policy
  2. B.Fiscal policy
  3. C.Income policy
  4. D.Trade policy
Show the answer and explanation

Answer: C Income policy

Why

Income policies (also called wage-price controls) are direct government interventions to regulate wages and prices to control inflation, distinct from monetary (interest rates, money supply) and fiscal (taxation, spending) policies. Wage controls aim to break inflationary wage-price spirals.

Question 6

Suppose the Ethiopian economy is initially at short-run equilibrium. A sudden increase in government spending occurs. Which of the following is the likely short-run effect on output and price level?

  1. A.The aggregate demand curve shifts right, increasing both the price level and real GDP.
  2. B.The short-run aggregate supply curve shifts left, reducing output and lowering the price level.
  3. C.The long-run aggregate supply curve shifts right, increasing output but leaving the price level unchanged.
  4. D.The aggregate demand curve shifts left, decreasing output and price level.
Show the answer and explanation

Answer: A The aggregate demand curve shifts right, increasing both the price level and real GDP.

Why

An increase in government spending directly increases aggregate demand (AD shifts right). In the short run, with upward-sloping SRAS, this leads to a higher price level and higher real GDP (output). This is the standard Keynesian demand-side effect. Option A is correct.

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The other Economics papers of 2018 E.C.

2018 E.C. (2026)

Economics papers from other years

2017 E.C. (2025)2016 E.C. (2024)2012 E.C. (2020)2011 E.C. (2019)

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All Grade 12 Economics papersAll papers of 2018 E.C.Every subject and year

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Is this the real Grade 12 entrance exam?

No. It is a model exam set in 2018 E.C. (2026) to prepare students for the entrance exam, in the same format. Our set holds 95 of its questions, each with its answer and a worked explanation.

Where are the real entrance exam papers?

The Grade 12 entrance exam papers we hold are on the exam papers page, listed by year beside the model exams.

Can I download this model exam as a PDF?

Yes, and it is free. The question paper is one file and the answer key with its worked explanations is another, so you can try it first. Print them, or keep them on your phone for revision when there is no data.

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