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Unit notes and practice questions

Grade 12 Economics unit 1: The fundamental concepts of macroeconomics

Everything here is for unit 1 of the Grade 12 Economics textbook: what the chapter covers, the short notes, practice questions with their answers, and the lesson video where one exists.

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5
Cards
10
Practice questions on unit 1
2–25
The textbook pages for unit 1

What unit 1 covers

  1. 1.Definition and Focus Areas of Macroeconomics Revisited
  2. 2.Definition of Macroeconomics
  3. 3.The Focus Areas of Macroeconomics
  4. 4.Key Challenges in Macroeconomics
  5. 5.Economic Growth
  6. 6.Inflation
  7. 7.Unemployment
  8. 8.Business Cycle
  9. 9.Balance of Trade
  10. 10.The Schools of Thought in Macroeconomic Analysis
  11. 11.Evolution and Recent Developments
  12. 12.The Classical and Neoclassical
  13. 13.Keynesian
  14. 14.Monetarist
  15. 15.New Classical
  16. 16.New Keynesian

Short notes for unit 1

The cards filed under this chapter on the Grade 12 Economics page. Open one at a time.

When you use it

Use when checking calculated unemployment rates from census or demographic questions.

Watch out

Do not divide unemployed persons by the total population or working-age population. The denominator must be the Labour Force (Employed + Unemployed).

Drafted from Grade 12 Economics, pages 2-25, then checked twice before it went up

Inflation Rate=CPI2−CPI1CPI1×100\text{Inflation Rate} = \frac{\text{CPI}_2 - \text{CPI}_1}{\text{CPI}_1} \times 100
Inflation Rate\text{Inflation Rate}
Percentage change in general price level%\%
CPI2\text{CPI}_2
Consumer price index in the current perioddimensionless\text{dimensionless}
CPI1\text{CPI}_1
Consumer price index in the base or previous perioddimensionless\text{dimensionless}

When you use it

Use when finding the annual or periodic rate of price inflation or deflation from Consumer Price Indices.

Watch out

Always divide by the past period index CPI_1, not the current index CPI_2. A negative result means deflation.

Drafted from Grade 12 Economics, pages 2-25, then checked twice before it went up

School of ThoughtKey Driver of EconomyPrice BehaviorPolicy Prescription
ClassicalAggregate supplyFully flexibleHands off, market self corrects
KeynesianAggregate demandSticky wages and pricesActive fiscal policy
MonetaristMoney supplyFlexible in long runControl money supply growth

When you use it

Use to distinguish the core assumptions and recommended government interventions across macroeconomic schools.

Watch out

Keynesians prioritize fiscal policy due to sticky prices, whereas Monetarists view fiscal expansion as merely crowding out private investment.

Drafted from Grade 12 Economics, pages 2-25, then checked twice before it went up

GNP=GDP+NFI\text{GNP} = \text{GDP} + \text{NFI}
GNP\text{GNP}
Gross National ProductETB\text{ETB}
GDP\text{GDP}
Gross Domestic ProductETB\text{ETB}
NFI\text{NFI}
Net factor income received from abroadETB\text{ETB}

When you use it

Use to convert Gross Domestic Product to Gross National Product using net receipts from abroad.

Watch out

NFI can be negative if factor income paid to foreigners exceeds factor income earned abroad by citizens.

Drafted from Grade 12 Economics, pages 2-25, then checked twice before it went up

Unemployment Rate=UnemployedLabour Force×100\text{Unemployment Rate} = \frac{\text{Unemployed}}{\text{Labour Force}} \times 100
Unemployment Rate\text{Unemployment Rate}
Percentage of the labour force that is jobless%\%
Unemployed\text{Unemployed}
Number of job seekers without workpeople\text{people}
Labour Force\text{Labour Force}
Total number of employed and unemployed individualspeople\text{people}

When you use it

Use when determining the proportion of the labour force actively looking for work but lacking employment.

Watch out

Do not include people outside the labour force like full-time students, retirees, or children in the denominator.

Drafted from Grade 12 Economics, pages 2-25, then checked twice before it went up

Practice questions on unit 1

10 multiple-choice questions written against this chapter, each with its answer and the reason. Try one before you open the answer.

Question 1

According to the textbook, macroeconomics emerged as a distinct branch of economics following the 1936 publication of a book by which economist?

  1. A.Adam Smith
  2. B.Milton Friedman
  3. C.John Maynard Keynes
  4. D.Alfred Marshall
Show the answer and why

Answer: C John Maynard Keynes

Why

Macroeconomics emerged after John Maynard Keynes published his influential book, The General Theory of Employment, Interest and Money, in 1936.

Question 2

According to Ethiopian labour law, which age group is classified as the economically active or working-age population?

  1. A.14 to 60 years
  2. B.18 to 65 years
  3. C.15 to 64 years
  4. D.21 to 60 years
Show the answer and why

Answer: A 14 to 60 years

Why

In Ethiopia, the population aged 14 to 60 is defined as the economically active or working-age population, while formal employment requires a minimum age of 18.

Question 3

What type of inflation occurs when the general price level rises persistently at a slow rate of 3 percent or less per year?

  1. A.Walking inflation
  2. B.Creeping inflation
  3. C.Galloping inflation
  4. D.Running inflation
Show the answer and why

Answer: B Creeping inflation

Why

Creeping inflation is a moderate rise in prices that occurs slowly at a rate of 3 percent or less per year.

Question 4

What are the four distinct phases of a business cycle in correct order?

  1. A.Expansion, peak, contraction, and trough
  2. B.Peak, expansion, trough, and contraction
  3. C.Trough, contraction, peak, and expansion
  4. D.Contraction, peak, expansion, and trough
Show the answer and why

Answer: A Expansion, peak, contraction, and trough

Why

A business cycle moves through four distinct phases: expansion (growth), peak (highest point), contraction (decline), and trough (lowest bottom point).

Question 5

In a market in Bahir Dar, the Consumer Price Index (CPI) was 120 in 2014 E.C. and rose to 150 in 2015 E.C. What was the annual inflation rate?

  1. A.20 percent
  2. B.25 percent
  3. C.30 percent
  4. D.35 percent
Show the answer and why

Answer: B 25 percent

Why

Inflation rate is calculated as: [(CPI in year 2 - CPI in year 1) / CPI in year 1] * 100. Here, [(150 - 120) / 120] * 100 = (30 / 120) * 100 = 25%.

Question 6

A new college graduate in Hawassa is actively searching for her first job and is temporarily without work while attending interviews. What type of unemployment is this?

  1. A.Cyclical unemployment
  2. B.Structural unemployment
  3. C.Frictional unemployment
  4. D.Disguised unemployment
Show the answer and why

Answer: C Frictional unemployment

Why

Frictional unemployment occurs when individuals enter the workforce for the first time or spend time searching and moving between jobs to match with employers.

Question 7

Under the expenditure approach, how is Gross Domestic Product (GDP) calculated?

  1. A.Wages + Salaries + Rental income + Profit
  2. B.Personal consumption (C) + Gross private investment (I) + Government purchases (G) + Net exports (NE)
  3. C.Gross National Product (GNP) + Net Factor Income from abroad (NFI)
  4. D.Total agricultural output + Total industrial output - Subsidies
Show the answer and why

Answer: B Personal consumption (C) + Gross private investment (I) + Government purchases (G) + Net exports (NE)

Why

The expenditure approach sums all final spending in the economy: personal consumption (C), gross private domestic investment (I), government purchases (G), and net exports (NE).

Question 8

According to John Maynard Keynes, why does an economy adjust slowly to shifts in aggregate demand during economic downturns?

  1. A.Because of sticky wages and prices
  2. B.Because money supply expands uncontrollably
  3. C.Because tax rates automatically fall to zero
  4. D.Because workers refuse to consume any goods
Show the answer and why

Answer: A Because of sticky wages and prices

Why

Keynes argued that the economy adjusts slowly to falls in aggregate demand because wages and prices are sticky, meaning they do not drop quickly to restore market balance.

Question 9

Suppose a nation has a GDP of 500 billion birr. Its citizens earn 40 billion birr from work abroad, while foreign citizens earn 60 billion birr inside the country. What is the nation Gross National Product (GNP)?

  1. A.520 billion birr
  2. B.480 billion birr
  3. C.560 billion birr
  4. D.440 billion birr
Show the answer and why

Answer: B 480 billion birr

Why

GNP is calculated as GDP + NFI. Net Factor Income (NFI) = factor income received from abroad (40 billion) - factor income paid abroad (60 billion) = -20 billion birr. Therefore, GNP = 500 + (-20) = 480 billion birr.

Question 10

Which of the following is a key reason why real GDP is commonly understated in developing countries?

  1. A.Environmental pollution costs are deducted from GDP calculations.
  2. B.A large portion of output comes from subsistence farming and is not reported in market accounts.
  3. C.Developing countries calculate national output using real per capita income only.
  4. D.Import taxes artificially inflate domestic consumption records.
Show the answer and why

Answer: B A large portion of output comes from subsistence farming and is not reported in market accounts.

Why

In developing nations, real GDP is understated because many citizens are subsistence farmers who consume their own output, and non-monetary sector transactions are often omitted from official accounts.

The app holds 12 questions on this unit, marked as you go. These are the first 10.

The textbook pages for unit 1

Unit 1 runs from page 2 to page 25 of the Ministry of Education edition.

Ministry of Education edition, English, 214 pages

Download the PDF

All Grade 12 Economics short notes

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