Question Paper - Mock Aristo

ARISTO EDUCATIONAL PRESS
HONG KONG DIPLOMA OF SECONDARY EDUCATION EXAMINATION
ECONOMICS PAPER 1
(Mock Test 25)
Time allowed: 1 hour
INSTRUCTIONS
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examination, you should first stick a barcode label and insert the information required in the spaces
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‘END OF PAPER’ after the last question.
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4. ANSWER ALL QUESTIONS. You are advised to use an HB pencil to mark all the answers on the
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answers clearly; otherwise you will lose marks if the answers cannot be captured.
5. You should mark only ONE answer for each question. If you mark more than one answer, you will
receive NO MARKS for that question.
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Not to be taken away before the

end of the examination session
HKDSE-ECON 1-1 (Mock Test 25) © 2021 Aristo Educational Press Ltd.
!
There are 45 questions in this paper. Choose the BEST answer for each question.
1. Miss Lee bought a car. In which of the following situations will her opportunity cost of using the car increase?
(1) The price of the car in the second-hand market increases.

(2) The performance of the car is worse than she expected.
(3) There are reports that the brake system of this car model is defective.
(4) The price of gasoline decreases.
A. (1) and (3) only

B. (1) and (4) only
C. (2) and (3) only
D. (2) and (4) only
2. Which of the following are positive statements?
(1) Levying a vacant property tax will cause the prices of residential properties to decrease.
(2) Levying a capital gain tax can help improve income inequality.
(3) Increasing the salaries tax rate will not affect people’s work incentive.
A. (1) and (2) only

B. (1) and (3) only
C. (2) and (3) only
D. (1), (2) and (3)
3. A bookshop decides to adopt a 'pay what you want' pricing scheme in which customers can decide the price of
each book they buy. The above case is related to the ____________ question(s) in economics.
A. ‘how to produce’
B. ‘for whom to produce’
C. ‘what to produce’ and ‘how to produce’
D. ‘what to produce’ and ‘for whom to produce’
4. There are three private broadcasters in Hong Kong offering free television programmes. These free television
programmes are
A. economic goods, because their demand is greater than their supply.

B. free goods, because people can watch the television programmes without paying any charges.
C. public goods, because a person’s consumption of a television programme will not reduce the amount
available to others.
D. private goods, because they are produced by private firms.
5. Ryan employs Jessie to produce instructional cooking videos with a fixed monthly salary. Jessie shoots these
videos with her smartphone at home. Jessie engages in _____________ and her income consists of
_____________.
A. secondary production … wages

B. secondary production … wages and interest
C. tertiary production … wages
D. tertiary production … wages and interest
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6. Which of the following is/are labour at a tutorial centre?
(1) students
(2) the receptionist who is paid a fixed monthly salary
(3) the tutors who are paid by a profit-sharing scheme
(4) the shareholders who do not participate in the management of the tutorial centre
A. (2) only
B. (1) and (3) only
C. (2) and (3) only
D. (2), (3) and (4) only
7. Which of the following is the most mobile in terms of occupational mobility?
A. a chef
B. a porter (㏔忳ⶍṢ)
C. a post-natal care worker (昒㚰⒉)
D. an economist
8. In recent years, more and more companies have participated in the research and development of electric vehicles,
leading to an increase in the price of raw materials used to produce electric vehicle batteries. In this case, the
electric car companies
A. enjoy external economies of scale.

B. suffer from external diseconomies of scale.
C. enjoy internal economies of scale.
D. suffer from internal diseconomies of scale.
9. In March 2021, American chip supplier Qualcomm acquired the chip start-up Nuvia for US$1.4 billion. Which of
the following is the LEAST likely motive behind the expansion?
A. to spread risks through business diversification

B. to strive for a higher market share
C. to strive for a higher profit for the company
D. to enjoy economies of scale
10. Which of the following will cause the profit-maximising output of a price-taking firm to decrease?
A. The market price increases.

B. The fixed cost increases.
C. The marginal cost of each unit of output decreases.
D. The average cost of each unit of output increases by the same amount.
11. An online shop launches a promotion campaign which waives the fixed shipping fee for each order. Which of the
following statements are CORRECT?
(1) The ratio of higher-priced goods sold to lower-priced goods sold will decrease.
(2) More lower-priced goods will be sold.
(3) The profit of the online shop will increase.
A. (1) and (2) only

B. (1) and (3) only
C. (2) and (3) only
D. (1), (2) and (3)
!
12. In order to reduce illegal parking, the government has increased the penalty for illegal parking. As a result, the
number of illegal parking cases has decreased. Which of the following concepts can be used to explain the above
phenomenon?
A. the law of demand

B. the law of diminishing marginal returns
C. economies of scale
D. the principle of comparative advantage
13. Suppose Hong Kong employers need to pay a higher handling fee for hiring Indonesian domestic helpers. At the
same time, the average wage level in the Philippines has increased. Which of the following diagrams could
represent a result of the above events?
A. Indonesian domestic helpers B. Indonesian domestic helpers

!
Wage rate Wage rate
S1 S2
S2 S1
D2 D1
0 D1 0 D2
Quantity Quantity
C. D.
Filipino domestic helpers! Filipino domestic helpers!
Wage rate Wage rate
S2 S2
S1 S1
D2 D1
D1 D2
0 Quantity 0 Quantity
!
14. The diagram below shows the market demand curve for private schools.
Price
D
0 Quantity
Which of the following reasons can best explain the change of the equilibrium position in the private school
market from A to B?
A. The government approves an increase in the fees of private schools.

B. The government approves more applications for opening private schools.
C. Fewer people are willing to engage in educational services.
D. More people emigrate to other countries.
15. Other things being constant, an increase in the price of good X will cause the total revenue of good Y to decrease
if
(1) good X and good Y are substitutes.

(2) good X and good Y are complements.
(3) good X and good Y are in joint supply and the demand for good Y is inelastic.
(4) good X and good Y are in competitive supply and the demand for good Y is inelastic.
A. (1) only
B. (1) and (3) only
C. (2) and (3) only
D. (2) and (4) only
16. Refer to the following demand and supply schedules for good X.
Unit price ($) 20 22 24 26 28

Quantity demanded (units) 10 9 8 7 6
Quantity supplied (units) 8 8 8 8 8
Suppose the government raises the price ceiling from $20 to $26. Based on the above table, which of the
following statements is CORRECT?
A. The market price will increase to $26.

B. The quantity transacted will decrease by 3 units.
C. Total sales revenue will increase by $32.
D. There will be a surplus of 1 unit in the market.
!
17. After the government increases the quota of good X from 10 to 15 units, the market price of good X drops from
$30 to $27. Which of the following is CORRECT?
A. The consumers’ total expenditure on good X will decrease.

B. There will be a shortage of good X in the market.
C. The market price of substitutes for good X will increase.
D. Within the above price range, the demand for good X is elastic.
18. Refer to the following demand and supply schedules for good X.
Unit price ($) 14 13 12 11 10 9 8

Quantity demanded (units) 10 12 14 16 18 20 22
Quantity supplied (units) 22 20 18 16 14 12 10
Suppose after the government imposing a per-unit tax on good X, the market price of good X increases by $3. The
ratio of consumers’ tax burden to producers’ tax burden is ___________.
A. 1:1
B. 1:2
C. 2:1
D. All of the above are incorrect.
19. Refer to the following demand-supply diagram of good X.
Price!
A
B
P2
C D
P1
G
E
F D2
D1
0 Quantity!
Suppose the demand for good X changes from D1 to D2. The producer surplus will increase by __________ and
the total social surplus will increase by __________.
A. area (C + D) … area (A + D)
B. area (C + D + E) … area (A + D)
C. area (A + D) … area (G + F)
D. area (C + D + E) … area (A + B + C + D + E)
!
20. When the government provides a per-unit subsidy to the producer of a good,
(1) the consumer surplus will increase.

(2) the producer surplus will increase.
(3) the total social surplus will increase.
A. (1) and (2) only

B. (1) and (3) only
C. (2) and (3) only
D. (1), (2) and (3)
21. Which of the following is an example of the divergence between private and social costs?
A. After a car manufacturer announced a price cut, the sales of other car manufacturers dropped
significantly.
B. A factory dumped pollutants into a river without giving compensation to residents downstream.
C. A restaurant distributes unsold food to the poor.
D. A factory installed an exhaust emission control device.
22. The table below shows the Gini coefficients of Singapore in 2019 and 2020.
2019 2020
Based on household income from work
per household member before
0.452 0.452
accounting for government transfers
and taxes
Based on household income from work
per household member after
0.398 0.375
accounting for government transfers
and taxes
(Source: Singapore Department of Statistics)
Based on the above information, we can conclude that:
(1) income before accounting for government transfers and taxes for high income households and that for low
income households remained unchanged in Singapore.
(2) the effectiveness of welfare and tax policies in narrowing the income gap increased in Singapore.
(3) the Lorenz curve before accounting for government transfers and taxes remained unchanged in Singapore.
A. (1) only
B. (2) only
C. (1) and (3) only
D. (2) and (3) only
23. To calculate the gross national income of Hong Kong, which of the following should be added to the GDP of
Hong Kong?
A. rental income earned by a Hong Kong resident from a property in Japan

B. dividends received by a Singapore resident from a listed company in Hong Kong
C. salary earned by a British resident who worked in a restaurant in Hong Kong for six months
D. salary earned by a Hong Kong resident who worked in the Hong Kong branch of an American bank
!
24. Suppose a closed economy produces soybeans and cloth only. The output of year 1 to year 3 is as follows.
Unit price of Output of Unit price of Output of cloth

Year
soybeans ($) soybeans (units) cloth ($) (units)
1 30 20 80 25
2 33 30 78 21
3 36 27 76 24
Which of the following statements about the economy is CORRECT?
A. The nominal GDP in year 2 is higher than that in year 1 and year 3.
B. The inflation rate of the economy is greater than zero in year 2 and year 3.
C. The real GDP of the economy has been increasing since year 1.
D. The cost of living in year 3 is lower than that in year 2.
25. Which of the following will cause the aggregate demand curve of a country to shift to the left?
A. The government raises the minimum wage level.

B. The government increases its expenditure on social welfare.
C. The global economy is in recession.
D. The general price level decreases.
26. The diagram below shows the aggregate demand curve, the short run aggregate supply curve and the long run
aggregate supply curve of an economy. The economy is initially at E0.
Price level
LRAS
SRAS0
SRAS1
E0
AD0
AD1
0 Output level
Which of the following can best explain the movement of the aggregate demand curve and the short run aggregate
supply curve shown in the above diagram?
A. a decrease in people’s desire to save and an increase in government subsidies on research and
development
B. a decrease in government spending on infrastructure and an increase in population
C. a decrease in the price of raw materials and a reduction in government transfer payments
D. a reduction of risk in the stock market and more residents migrating to other places
!
27. Compared to gold, banknotes are a better form of money. This is because banknotes are more _____________.
(1) scarce
(2) portable
(3) generally acceptable
A. (1) and (2) only

B. (1) and (3) only
C. (2) and (3) only
D. (1), (2) and (3)
28. Which of the following will lead to an increase in the monetary base?
A. The public withdraws money from the banking system.

B. The public’s demand for bank loans decreases.
C. The central bank raises the required reserve ratio.
D. The central bank lowers the discount rate.
29. Suppose the money supply data of Hong Kong is as follows:
Components $ billion
Total issue of legal tender 280
Legal tender held by all authorised institutions 200
Demand deposits 650
All types of deposits with licensed banks 2,250
Negotiable certificates of deposit issued by licensed
360
banks (other than those held by authorised institutions)
Deposits with restricted licence banks and deposit-taking
650
companies
Negotiable certificates of deposit issued by restricted
licence banks and deposit-taking companies (other than 220
those held by authorised institutions)
The money supply M2 is $_____________ billion.
A. 2,690
B. 2,810
C. 3,340
D. 4,330
30. Study the following balance sheet of a banking system. Suppose the public hold $200 million cash and the banks
do not hold excess reserves.
Assets ($ million) Liabilities ($ million)

Reserves 450 Deposits 1,350
Loans 900
If the public _____________, the maximum possible amount of money supply will be $1,450 million.
A. withdraw $50 million cash from the banking system

B. withdraw $100 million cash from the banking system
C. deposit $50 million cash into the banking system
D. deposit $100 million cash into the banking system
!
31. The diagram below shows the money demand and money supply curves of an economy. The original equilibrium
point is at E.
Nominal
interest rate! MS1 MS0 MS2
A B
E
C
Md2
D
Md0
Md1
0 Quantity of money
Suppose the use of electronic wallets is becoming more popular and the central bank lowers the required reserve
ratio. The new equilibrium point will be at _____________.
A. A
B. B
C. C
D. D
32. In the diagram below, A is situated in a certain phase of the business cycle.
% change in real GDP!
!Average growth rate
Year
0
Which of the following phenomena is the LEAST likely to be observed at point A?
A. The unemployment rate is high.

B. The inflation rate is increasing.
C. Companies’ sales volumes are at a low level.
D. Applications for bankruptcy are at a high level.
33. Suppose the expected inflation rate is 4% and the nominal interest rate is 5%. If the actual inflation rate is 2%, the
cost of holding money is ______________ and the real rate of return on holding money is ____________.
A. 1% … 2%
B. 1% … 4%
C. 5% … 2%
D. 5% … 4%
!
34. Refer to the following information on an economy.
Year 1 Year 2
Money supply ($) 120 million 100 million
Real output (units of goods) 800 million 750 million
According to the quantity theory of money, ______________ in year 2 has decreased.
A. the inflation rate

B. the unemployment rate
C. the velocity of circulation of money
D. the nominal GDP
35. Which of the following is/are direct tax(es) in Hong Kong?
(1) profits tax

(2) dividend tax
(3) bets and sweeps tax
(4) capital gains tax
A. (1) only
B. (1) and (3) only
C. (2) and (3) only
D. (2) and (4) only
36. In a certain year, the nominal wage rate decreases by 4% while the general price level increases by 2%. If the
government reduces the salaries tax allowance by 5%,
A. the government’s salaries tax revenue will decrease.

B. people’s work incentive will increase.
C. people’s real income after tax will increase.
D. more people will fall into the tax net.
37. Refer to the following AS-AD diagram of an economy.
Price level LRAS
SRAS
AD
0 Aggregate
output
The economy operates at E initially. Which of the following policies can help the economy restore to the long run
equilibrium without increasing the nominal interest rate?
A. providing production subsidies to small and medium enterprises

B. raising the standard tax rate of the salaries tax
C. lowering the required reserve ratio
D. selling government bonds in the open market
!
38. The government is going to begin the construction of the MTR Northern Link. During the construction period,
Hong Kong’s ___________ will increase.
(1) employment rate

(2) gross domestic product
(3) potential output level
A. (1) and (2) only

B. (1) and (3) only
C. (2) and (3) only
D. (1), (2) and (3)
39. The table below shows data on Country A.
Good X Good Y
(units) (units)
Total output with no international trade 50 AND 75
Total output with specialisation and
0 AND 150
international trade
Total consumption with international trade 75 AND 120
Which of the following statements about Country A is CORRECT?
A. The opportunity cost of producing 1 unit of good X is 0.67 units of good Y.

B. The terms of trade is 1 unit of good X = 1.6 units of good Y.
C. If the transportation cost per unit of good X is 0.5 units of good Y, Country A will not trade with
another country.
D. The gain from trade of importing 1 unit of good X is 1.1 units of good Y.
40. A country has an absolute advantage in producing good X. Which of the following statements about this country
is CORRECT?
A. The opportunity cost of producing good X in this country is lower than that in other countries.
B. This country has a comparative advantage in producing good X.
C. This country needs to use more resources than other countries to produce the same amount of good X.
D. This country can produce more units of good X than other countries with the same resources.
41. Suppose a small open economy imposes an import tariff on good X and the demand for good X in the economy
increases. Which of the following statements is CORRECT?
A. The import volume of good X will remain unchanged.

B. The market price of good X will increase.
C. The domestic production of good X will decrease.
D. The total import value of good X will increase.
42. Suppose initially the value of exports is equal to the value of imports in economy A. If ___________, the price
level of the economy will increase and there will be a trade deficit.
A. the government of economy A imports more foreign labour

B. economy A’s trading partners experience economic recovery
C. the currency of economy A appreciates
D. the investment incentive of the firms in economy A increases
!
43. The following table shows the information about the balance of payments of a country in a certain year.
Items $ million
Visible trade balance 65
Invisible trade balance 25
Net factor income from abroad X
Net current transfer 10
Capital inflow 20
Capital outflow 50
Increase in reserve assets 20
Based on the above information, the value of X is __________.
A. 30
B. 50
C. 30
D. 50
44. Mavis participated in the Working Holiday Scheme in 2019 and went to Australia to work for three months.
Which of the following statements are CORRECT?
(1) The salary she earned in Australia is included in the calculation of Hong Kong’s GNI in 2019.
(2) The salary she earned in Australia needs to be taxed in Hong Kong.
(3) The salary she earned in Australia is included in the calculation of Hong Kong’s current account balance.
A. (1) and (2) only

B. (1) and (3) only
C. (2) and (3) only
D. (1), (2) and (3)
45. Which of the following statements about the linked exchange rate system of Hong Kong is CORRECT?
A. The money supply M1 of Hong Kong has to be fully backed by the US dollar.
B. A balance of payments surplus in the United States will lead to a balance of payments surplus in Hong
Kong.
C. If the US dollar depreciates against the Renminbi continuously, the volume of goods exported from
Hong Kong to the Mainland of China will increase.
D. The public can convert US dollars at the Hong Kong Monetary Authority at an exchange rate of
US$1 = HK$7.8.
EN D O F PAP E R
!
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ARISTO EDUCATIONAL PRESS Candidate Number

HONG KONG DIPLOMA OF SECONDARY EDUCATION EXAMINATION
ECONOMICS PAPER 2
(Mock Test 25)
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Section A (44 marks)
1. Macy and Karen are fashion designers for a clothing company. They earn the same wage.
(a) Explain whether their opportunity costs of working as a fashion designer are necessarily the same.
(2 marks)
(b) If the company raises their wages by 20%, will their opportunity costs of working as a fashion
designer change? Explain. (2 marks)
Answers written in the margins will not be marked.
2. Some teachers use the app developed by Zoom, an American technology company, to conduct online lessons
with students.
(a) Explain whether these online lessons are public goods. (3 marks)
(b) In January 2021, Zoom announced the issuance of US$1.5 billion of shares to raise capital. From the
viewpoint of the existing shareholders, explain ONE advantage and ONE disadvantage of issuing
shares over bonds. (4 marks)
3. Figure 1 shows the AS-AD diagram of an economy. E0 is the initial short run equilibrium of the economy.
Figure 1
Price level
LRAS0 SRAS
0
E
P0
AD0
0 Output level
Y0 Yf
With the aid of Figure 1, explain how market forces will help the economy restore to its long run
equilibrium. (5 marks)
4. Refer to the following news report.
The Hong Kong Monetary Authority (HKMA) encourages the public to use electronic payment methods to
give red packets during the Lunar New Year, such as online banking services or other electronic payment
systems. HKMA said that this would eliminate the need to exchange new notes at bank branches.
(Source: Hong Kong Monetary Authority)
Discuss the effect on the nominal interest rate of more people using electronic payment methods instead of
cash to give red packets. (3 marks)
5. The following table shows the change in the exchange rate of the Australian dollar (AUD) against the Hong
Kong dollar (HKD).
Date Exchange rate

January 2020 5.35 HKD = 1 AUD
December 2020 5.84 HKD = 1 AUD
(Source: Census and Statistics Department, HKSAR Government)
(a) Assume that the price of Australian red wine (in terms of AUD) has not changed. With the aid of a
diagram, explain the effect of the above change in the exchange rate on the total value of Australian red
wine exported to Hong Kong (in terms of AUD). (7 marks)
(b) ‘Compared with the Australian red wine sold in Australia, the average quality of Australian red wine
sold in Hong Kong is higher.’ Explain the argument using the law of demand. (5 marks)
6. The following table shows the balance sheet of a banking system. The required reserve ratio is 25%. Assume
that the public always hold $100 million cash.
Assets ($ million) Liabilities ($ million)

Reserves 500 Deposits 1,500
Loans 1,000
(a) Calculate the excess reserves of the banking system. (1 mark)
(b) Calculate the monetary base and the money supply of the economy. (2 marks)
(c) Suppose the central bank raises the required reserve ratio to 40%. Calculate the maximum possible
change in money supply. Show your workings. (2 marks)
7. Suppose the output of soybeans and rice per unit of resources of Country A and Country B is as follows:
Soybeans (units) Rice (units)

Country A 3 OR 12
Country B 24 OR 18
(a) Explain whether Country A has
(i) an absolute advantage; and
(ii) a comparative advantage
in producing rice. (5 marks)
(b) Suppose the transportation cost per unit of rice traded is 0.67 units of soybeans. Is it possible to have
mutually beneficial trade between these two countries? Explain. (3 marks)
END OF SECTION A
Section B (60 marks)
8. From January 2021, the personal income tax system in Russia has changed as follows:
Personal income Old tax system New tax system

Below 5 million rubles 13%
13%
Over 5 million rubles 15%
(Source: various newspapers)
(a) Is the new personal income tax system of Russia progressive, proportional or regressive? Explain.
(2 marks)
(b) Will the above change in the tax system necessarily increase the tax revenue of the Russian government
from personal income tax? Explain. (4 marks)

(c) Evaluate the above change in the tax system in terms of equity and economic efficiency. (4 marks)
(d) With the aid of a diagram, discuss the effect of the above change in the tax system on Russia’s output
level in the short run. (6 marks)
9. The price of residential properties in the United Kingdom is a topic of concern to the people there.
Source 1: Average residential prices in the United Kingdom from January to November 2020
(£)
255,000
250,000
245,000
240,000

235,000
230,000
225,000
220,000
0
2020 2020 2020 2020 2020 2020 2020 2020 2020 2020 2020
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov
(Source: Office for National Statistics)
Source 2: A measure announced by the British government
In July 2020, the United Kingdom announced that it would adjust the Stamp Duty Land Tax on 1 April
2021. Under the new tax system, non-UK residents are required to pay a higher Stamp Duty Land Tax
when purchasing properties, while UK residents are not affected.
(a) WITHOUT using a diagram, explain why the measure in Source 2 is a possible reason for the change
in the average residential price in the UK after the announcement of the measure. (4 marks)
(b) Ms Chan is a Hong Kong resident. She bought a residential property in London through a British
property agent. Explain whether the following would affect Hong Kong’s current account:
(i) the commission paid by Ms Chan to the property agent (2 marks)
(ii) the amount that Ms Chan paid to purchase the residential property (2 marks)
(c) ‘The policy mentioned in Source 2 will reduce the number of residential properties purchased by
non-UK residents and thus will keep prices of residential properties under control.’ Explain whether this
statement is a positive statement. (2 marks)
10. Food delivery services in Country A have developed rapidly.
Study the following information on the market shares of food delivery services firms in Country A.
12% Firm A
32% Firm B
13%
Firm C
18% Firm D
Others

25%
(a) To which type of market structure does the market of food delivery services in Country A belong? List
THREE features of this type of market structure. (4 marks)
A food delivery company hires a rider at a salary of $30 per order.
(b) From the viewpoint of the employer, explain TWO advantages of using this wage payment method over
time rate. (4 marks)
Affected by the COVID-19 pandemic, the government of Country A announced that restaurants are banned
from providing dine-in services.
(c) Explain how this will affect the price elasticity of demand for food delivery services. (3 marks)
11. Since the outbreak of COVID-19, the unemployment situation in Hong Kong has raised public concern. The
government has tried to boost the economy in various ways; this imposes a financial burden on the
government.
Source A: Hong Kong’s unemployed population and unemployment rate in 2020

300,000 7.00%
250,000 6.00%
5.00%
200,000
4.00%
150,000

3.00%
100,000
2.00%
50,000 1.00%
0 0.00%
Unemployed population Unemployment rate
(Source: Census and Statistics Department, HKSAR Government)
Source B: Comment of the Financial Secretary on public finances

Mr Paul Chan, the Financial Secretary, said that public expenditure on investment would be increased to ease
the impact of economic recession on society. He also stated that the Hong Kong government might record a
large deficit.
Source C: Conversation between two people on Hong Kong’s tax system
Mr Wong (a high-income person): I think the government can levy indirect taxes to broaden the tax base and
cope with the fiscal deficit that may arise during the economic downturn.
Mrs Chan (an unemployed person): I don’t think so. The imposition of indirect taxes such as a general sales
tax has a great impact on people like me. I still have to engage in consumption to meet basic needs even if I
have no income.
Source D: Opinions from different stakeholders on the unemployment problem

Providing unemployment benefits to the unemployed will require a huge
amount of public funds.
A government official
Many unemployed people face the problem of falling income.

A politician
I am under heavy financial pressure due to unemployment, and I must find a
job as soon as possible to make a living.
An unemployed person
(a) Explain how the change in the unemployed population shown in Source A would affect the government
revenue. (2 marks)
(b) Refer to Source B. Explain how the Financial Secretary’s policy on public expenditure would affect Hong
Kong’s potential output level. (3 marks)
(c) Refer to Source C. Explain why the introduction of a general sales tax can better stabilise government
revenue than direct taxes in times of economic downturn. (2 marks)
For part (d), candidates are required to present their answer in essay form. Criteria for marking will
include use of sources and economic theories, relevant content, logical presentation and clarity of
expression.
(d) Some politicians suggested providing unemployment subsidies to the unemployed to alleviate the impact
of the economic downturn on them. With reference to the above sources and your own knowledge in
Economics, discuss the impact of the proposal on Hong Kong, including:
- aggregate output,
- income distribution,
- unemployment rate, and
- other economic variable(s).
(14 marks)
(e) Suggest ONE proposal, other than providing unemployment subsidies, for lowering the unemployment
rate. Briefly explain how your proposal works. (2 marks)
END OF PAPER

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ARISTO EDUCATIONAL PRESS

HONG KONG DIPLOMA OF SECONDARY EDUCATION EXAMINATION

Time allowed: 1 hour

3. All questions carry equal marks.

6. No marks will be deducted for wrong answers.

Not to be taken away before the

(1) The price of the car in the second-hand market increases.

A. (1) and (3) only

2. Which of the following are positive statements?

A. (1) and (2) only

A. economic goods, because their demand is greater than their supply.

A. secondary production … wages

7. Which of the following is the most mobile in terms of occupational mobility?

A. enjoy external economies of scale.

A. to spread risks through business diversification

A. The market price increases.

A. (1) and (2) only

A. the law of demand

A. Indonesian domestic helpers B. Indonesian domestic helpers

A. The government approves an increase in the fees of private schools.

(1) good X and good Y are substitutes.

Unit price ($) 20 22 24 26 28

A. The market price will increase to $26.

A. The consumers’ total expenditure on good X will decrease.

Unit price ($) 14 13 12 11 10 9 8

19. Refer to the following demand-supply diagram of good X.

(1) the consumer surplus will increase.

A. (1) and (2) only

Based on the above information, we can conclude that:

A. rental income earned by a Hong Kong resident from a property in Japan

Unit price of Output of Unit price of Output of cloth

Which of the following statements about the economy is CORRECT?

A. The government raises the minimum wage level.

A. (1) and (2) only

A. The public withdraws money from the banking system.

29. Suppose the money supply data of Hong Kong is as follows:

The money supply M2 is $_____________ billion.

Assets ($ million) Liabilities ($ million)

A. withdraw $50 million cash from the banking system

% change in real GDP!

!Average growth rate

Which of the following phenomena is the LEAST likely to be observed at point A?

A. The unemployment rate is high.

According to the quantity theory of money, ______________ in year 2 has decreased.

A. the inflation rate

35. Which of the following is/are direct tax(es) in Hong Kong?

(1) profits tax

A. the government’s salaries tax revenue will decrease.

37. Refer to the following AS-AD diagram of an economy.

Price level LRAS

A. providing production subsidies to small and medium enterprises

(1) employment rate

A. (1) and (2) only

39. The table below shows data on Country A.

Which of the following statements about Country A is CORRECT?

A. The opportunity cost of producing 1 unit of good X is 0.67 units of good Y.

A. The import volume of good X will remain unchanged.

A. the government of economy A imports more foreign labour

Based on the above information, the value of X is __________.