1. Problem: Define what economics studies. Economics studies the allocation of limited resources to meet limited wants. Hence, the correct answer is c. 2. Problem: Define scarcity in economics. Scarcity means more wants than resources, thus the correct answer is b. 3. Problem: Identify the five big economic questions. They are What? How? When? Where? Who?, so answer is a. 4. Problem: Select one of the 8 "Big Ideas" in economics. Trade-offs cause opportunity cost, so answer is b. 5. Problem: How are opportunity costs measured? As the cost of the action chosen in terms of the forgone alternative, answer is c. 6. Problem: Define marginal benefit. It is an additional benefit, answer is c. 7. Problem: Define a measure of efficiency in production. Production on the production possibility curve is efficient, answer is a. 8. Problem: Identify which is not a macroeconomic decision. The average price of a good or service is microeconomics, so b. 9. Problem: Identify a normative statement. "Nekesa should eat less cookies than candies" is normative, answer b. 10. Problem: Define "Ceteris Paribus". It means other things held constant, answer c. 11. Problem: Four categories of resources. Land, labor, capital and entrepreneurship, answer b. 12. Problem: Define land comprehensively. Natural resources, answer d. 13. Problem: What does production possibility frontier illustrate? All efficient combinations, answer b. 14. Problem: Producing on the production possibility frontier means? None of the above given apply directly, so d. 15. Problem: What does GDP measure? Goods and services produced in economy over period, answer c. 16. Problem: Which is NOT in expenditure approach for GDP? Net interest in capital markets is NOT, answer a. 17. Problem: Expenditure that is included in GDP? Final use purchase price, answer b. 18. Problem: Component NOT for GDP income approach? Imports, answer a. 19. Problem: Calculate Kenya's GDP. GDP = production in country by anyone = goods by Kenyans in Kenya (7T) + goods by non-Kenyans in Kenya (3T) = 10 trillion, answer d. 20. Problem: Calculate Kenya's GNP. GNP = goods by Kenyans in Kenya + goods by Kenyans abroad = 7T + 3T = 10 trillion, answer d. 21. Problem: Student's value added buying cake 500 and selling 750. Value added = 750 - 500 = 250, answer a. 22. Problem: CPI is 105 means? Prices are 5% higher than base year, answer d. 23. Problem: Real GDP if nominal is 5T and deflator 125. Real GDP = nominal / (deflator/100) = 5 / 1.25 = 4 trillion, answer a. 24. Problem: Aggregate demand behavior is of? All of the above (foreign buyers, households, governments), answer d. 25. Problem: Shape of long run aggregate supply curve? Vertical at potential GDP, answer b. 26. Problem: What shifts short run aggregate supply curve? An increase in technology, answer b. 27. Problem: The N in C+I+G+N stands for? Net imports over consumption, answer d. 28. Problem: The 45-degree line in Aggregate Expenditure curve stands for? Whatever is earned is spent, answer c. 29. Problem: If MPC=0.25 and AE increases by 1 trillion, consumption increases by MPC*increase = 0.25*1T = 0.25 trillion, answer d. 30. Problem: Change in savings when AE increases by 1 trillion with MPC=0.25. Change in savings = (1 - MPC)*increase = 0.75*1T = 0.75 trillion, answer b.