AD-AS

1. In 2011, the Financial Secretary announced the “Scheme $6000” which provides
$6000 to each Hong Kong permanent resident who is 18 years old or above.
c. With the aid of a diagram, explain how the “Scheme $6000” would affect
the price and output levels of Hong Kong in the long run. (8 marks)
[2012-10c]
2. a. Give ONE reason to explain why the aggregate demand curve is downward
sloping. [2013-4] (3 marks)
b. Suppose there is an increase in the price of raw materials. With reference to
the market adjustment mechanism from the short run equilibrium to the
long run equilibrium, explain the long run effect of the above change on the
price level with the aid of the diagram. (9 marks)

3. Source 2 below is an extract from a newspaper articles

(b) With
reference to
Source 2,
discuss the
possible
effect on the
aggregate
output in
the long run as a result of the relaxation of the one-child policy.
(3 marks) [14-11]
12. The Prime Minister of Japan, Shinzo Abe, adopted a series of policy measures in
 2013 to expand the Japanese economy. One of the policy measures was stepping
up the scale of the purchase of government bonds and other financial assets by the
central bank. [14-12]
(c) What would be the short run effects of the above policy on the output and
price levels of the Japanese economy? Explain your answer with the aid of
an aggregate-supply-aggregate-demand diagram. (8 marks)

12. Research shows that the “Individual Visit Scheme” of mainland tourists has
bought economic benefits to Hong Kong. However, more and more Hong Kong
residents have called on the government to reduce the number of mainland tourists
to Hong Kong under the Scheme.
An economists uses the AS-AD model to analyse the current situation in Hong
Kong. In his analysis, point E in Figure 2 represents the initial short-run
equilibrium of the Hong Kong economy.

(b) He points out that the government can help the economy restore to its -
run equilibrium. With the aid of Figure, explain how the reduction in the of
tourists from the mainland can lower the output level to Yf. (5 marks)
(c) He also states that even without the help of the government, market forces
can restore the economy to its long-run equilibrium. WITHOUT using a
diagram, explain how market forces can lower the output level to Yf in the long
run. (4 marks)
(d) Some residents complained that the large number of tourists overloaded the
public transportation system, resulting in a large increase in travel time for all
passengers. Explain, in terms of externality, why efficiency may exist when the
transportation system is overloaded. (4 marks)

4. Explain, with ONE reason, why the short-run aggregate supply curve is upward-
sloping. (3 marks) [16-5]
5. Gaming industry is a major sector in Macau’s export of services. The following
diagram shows the revenue from the gaming industry and the aggregate output of
Macau.

a. With reference to the above diagram, describe and explain the trend of the
importance of the gaming industry relative to the aggregate output of Macau.
(2 marks)
The Macau government implements a cash-sharing scheme, under which every
resident receives cash from the government.
b. With the aid of an AS-AD diagram, explain how the cash-sharing scheme
would affect output and price levels in the short run. (6 marks)
The recent decline in the gaming industry results in a drop in tax revenue.
Hence, the government considers reducing its spending on investment but still
keeping the cash-sharing scheme. However, an economist suggests that the
government should suspend the cash-sharing scheme and allocate the sum of
money to investment instead.
c. Discuss the suggestion of the economist by giving arguments FOR and
AGAINST it. (5 marks)

6. Figures 1 and 2 show some macroeconomic data of the U.S. [17-9]

 (a) Refer to Figure 1. Identify the phase of business cycle which point A is in.
(1 mark)
(b) How may a reduction in interest rate help the US economy in 2009? Without
using a diagram, explain your answer in the light of aggregate supply and /or
aggregate demand. (3 marks)

(c) Discuss whether the data in Figures 1 and 2 are consistent with your answer
in (b). (4 marks)
(d) Suggest ONE policy that will help increase the aggregate output in the long
run. Briefly explain your answer. (2 marks)

7. Before the British people voted against staying in the European Union (EU) , i.e.
Brexit, workers from the EU were free to work in Britain and vice versa. Brexit
has shocked the economies in Europe and the following table shows some views
on Brexit: [17-12]
British politicians: British firm owners:
Low-skilled EU workers should be The new visa requirement for EU
required to apply for a visa to work in workers affects most of the firms in the
Britain. British economy.
Global investors: EU officials:
Political uncertainty in Britain British citizens may require a visa to
increases the risk of investment visit or to work in the EU countries.
projects there.
(b) Referring to the views of the British firm owners and global investors,
discuss the effect of Brexit on the aggregate output of Britain in the short
run with the aid of a diagram. (8 marks)

8. To cope with the problem of a rapidly aging population in Hong Kong, the
government has proposed a retirement protection scheme under which eligible
elderly would receive $38 760 per year. [17-13]
(b) To finance the scheme, there are different proposals which include:
 Discuss the effects of these two proposals on economic variables which
include
(i) aggregate output,
(ii) income distribution, and
(iii) ONE other economic variable. (10 marks)
9. The Express Rail Link (XRL) project (Hong Kong Section) is expected to be
completed in 2018. It will shorten the estimated journey time between Hong
Kong and various Mainland cities. Below are some opinions on the XRL project.
[18-9]

10. The following table shows the changes in the individual income tax system in
China effective from October 2018. [19-10]

(a) Is the individual income tax in China progressive, proportional, or

regressive? Explain your answer. (2 marks)
(b) Suppose there is a deflationary (output) gap in China economy. With the
aid of an AS-AD diagram, explain how the above change of the individual
income tax system would affect the deflationary (output) gap in the short
run. (7 marks)