ARISTO EDUCATIONAL PRESS

HONG KONG DIPLOMA OF SECONDARY EDUCATION EXAMINATION

ECONOMICS PAPER 1
(Mock Test 19)

Time allowed: 1 hour

INSTRUCTIONS

1. Read carefully the instructions on the Answer Sheet. After the announcement of the start of the
examination, you should first stick a barcode label and insert the information required in the spaces
provided. No extra time will be given for sticking on the barcode label after the ‘Time is up’
announcement.

2. When told to open this book, you should check that all the questions are there. Look for the words
‘END OF PAPER’ after the last question.

3. All questions carry equal marks.

4. ANSWER ALL QUESTIONS. You are advised to use an HB pencil to mark all the answers on the
Answer Sheet, so that wrong answers can be completely erased with a clean rubber. You must mark the
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.

6. No marks will be deducted for wrong answers.

Not to be taken away before the

end of the examination session

HKDSE-ECON 1-1 (Mock Test 19) © 2019 Aristo Educational Press Ltd.
There are 45 questions in this paper. Choose the BEST answer for each question.

1. The MTR Corporation increased the frequency of trains during rush hours to meet the needs of passengers. The
above case is related to the _______ question(s) in economics.

A. “what to produce”
B. “how to produce”
C. “for whom to produce”
D. “how to produce” and “for whom to produce”

2. Wendy is a Hong Kong citizen and she is going to travel to Thailand for leisure. She bought a non-transferable
economy class air ticket. Which of the following will decrease her cost of having the trip?

A. The price of air tickets to Thailand decreases after Wendy has bought her ticket.
B. The airline upgrades Wendy to business class for free when she checks in at the airport.
C. The Thai baht depreciates against the Hong Kong dollar.
D. The food she enjoys during her trip is better than expected.

3. Matthew lent a suitcase to Andy and asked him to return it with souvenirs. Which of the following statements
about the above situation is CORRECT?

A. There is no interest because no money is involved.

B. The souvenirs are regarded as interest to Andy but not to Matthew.
C. Both the suitcase and the souvenirs are regarded as interest to Andy because he has to return the
suitcase with souvenirs to Matthew afterwards.
D. The souvenirs are regarded as interest to Matthew because they are the compensation he receives for
deferring consumption of the suitcase.

4. “The average quality of output would be higher if workers were paid by piece rate instead of time rate.” This
statement is a __________ statement because _________________.

A. positive … it can be tested against objective facts

B. positive … it is always true
C. normative … it is incorrect
D. normative … it contains value judgement

5. A fitness centre offers free yoga lessons to university students. Which of the following statements is CORRECT?

A. The yoga lessons are free goods to university students but economic goods to other customers.
B. The yoga lessons are economic goods because more of the yoga lessons are preferred.
C. The fitness centre is not maximising its profit.
D. The university students do not have to compete for the yoga lessons because they are free of charge.

HKDSE-ECON 1-2 (Mock Test 19) © 2019 Aristo Educational Press Ltd.
6.
According to a survey, the overall average staff turnover rate in Hong Kong was 10.9% in the first half of
2018. The average turnover rate of the retail industry was 18.0% while that of the financial services/
banking/insurance industry was 5.7%.

Which of the following best explains the difference in turnover rate among these industries?

A. The productivity of workers in the financial services/banking/insurance industry is higher.

B. Workers in the retail industry have higher occupational mobility than workers in the financial
services/banking/insurance industry.
C. Workers in the retail industry are usually paid by basic salary plus commission while workers in the
financial services/banking/insurance industry are usually paid by time rate.
D. The geographical mobility of workers in the retail industry is higher than workers in the financial
services/banking/insurance industry.

7. China Grand Pharmaceutical and Healthcare Holdings Limited (遠大醫藥健康控股有限公司, stock code: 512) is
a company that produces pharmaceutical products. In August 2018, it issued more shares to raise capital. The
capital raised would be used to acquire Sirtex Medical Limited, an Australian medical device company.

A. The acquisition can ensure a higher profit for the company.

B. The acquisition can reduce competition by turning a competitor into a partner.
C. From the viewpoint of the company, issuing shares can raise more capital than issuing bonds.
D. For existing shareholders who did not subscribe to the new shares, their power of control over the
company will be diluted.

8. The major shareholder of Hopewell Holdings Limited (stock code: 0054) proposed privatisation of the company,
which, if successful, will lead to the company getting delisted from the stock exchange. From the viewpoint of
existing shareholders, which of the following is a possible motive behind this?

A. to reduce the risk of being taken over

B. to have better continuity
C. to enjoy economies of scale
D. to have a wider source of capital

9. The market structure of free television programme services in Hong Kong is regarded as ____________ because
_________________.

A. an oligopoly … there are only a few dominant television broadcasting companies in the market
B. an oligopoly … the set-up cost of a television broadcasting company is very high
C. a monopoly …Television Broadcast Limited (TVB) has a much higher market share than its
competitors
D. a monopolistic competition … television broadcasting companies are providing heterogeneous
television programmes

10. Which of the following is the least mobile in terms of occupational mobility?

A. a construction worker
B. a pilot
C. a taxi driver
D. a flight attendant

HKDSE-ECON 1-3 (Mock Test 19) © 2019 Aristo Educational Press Ltd.
11. The following table shows the cost-output relationship of a price taker.

Total output (units) 2 3 4 5

Average fixed cost ($) 60 40 30 24
Average variable cost ($) 20 35 55 74

Suppose the market price is $115. What are the profit-maximising output and profit respectively?

A. 3 units and $240

B. 3 units and $345
C. 4 units and $120
D. 4 units and $240

12. The following table shows a production plan of a firm which employs two factors only, namely labour and
machinery.

Labour (units) Machinery (units) Total product (units)

1 3 3
2 3 8
3 3 14
4 3 19
5 3 20
6 3 18

The marginal product of labour starts diminishing when the _______ unit of labour is put to work.

A. 3rd
B. 4th
C. 5th
D. 6th

13. The diagram below shows the supply and demand curves for CD albums in Hong Kong. The original equilibrium
is at E0.

Unit price

S2
E2 S0
S1
E0
E1 E3

E4
D1
D0
D2
0 Quantity

Suppose the raw materials for producing CDs become more expensive and online music streaming platforms
become more popular. The new equilibrium point will be at __________.

A. E1
B. E2
C. E3
D. E4

HKDSE-ECON 1-4 (Mock Test 19) © 2019 Aristo Educational Press Ltd.
14. Refer to the following demand and supply schedules for good X.

Unit price ($) Quantity supplied (units) Quantity demanded (units)

10 25 45
11 30 40
12 35 35
13 40 30
14 45 25
15 50 20

After the government imposes a per-unit tax on good X, the market price of good X increases by $2. Which of the
following statements is CORRECT?

A. The sellers’ revenue net of tax will be $350.

B. The total tax revenue will be $50.
C. The buyers’ total expenditure on good X will increase by $30.
D. The tax burdens borne by the buyers and the sellers are equal.

15. ABC Express is a courier company operating in Hong Kong. Which of the following will result in a decrease in
the supply of the services provided by ABC Express?

A. The fuel price decreases.

B. The competitors of ABC Express raise the charges for courier services.
C. The competitors of ABC Express raise the salaries of their staff members.
D. More customers give negative comments about the services provided by ABC Express on the Internet.

16. Which of the following is INCONSISTENT with the law of demand?

A. People tend to order more expensive wines in more high-class restaurants.

B. If the service charge that applied to all dishes increased from 10% to 15%, customers would tend to
order more expensive dishes.
C. People tend to order more expensive dishes in restaurants when there is long queuing time.
D. Tourists from other countries tend to order more expensive dishes than local customers in restaurants.

17. Refer to the following demand and supply schedules for a good.

Unit price ($) Quantity supplied (units) Quantity demanded (units)

9 10 18
10 12 16
11 14 14
12 16 12
13 18 10

After the level of price floor on the good is adjusted, the quantity transacted of the good increases from 10 units to
12 units. The elasticity of _____________ is ____________ within the relevant price range.

A. demand … elastic
B. demand … inelastic
C. supply … elastic
D. supply … inelastic

HKDSE-ECON 1-5 (Mock Test 19) © 2019 Aristo Educational Press Ltd.
18. Suppose the market price of good X decreases by $3 after the government provides a per-unit subsidy of $5 to the
producers of good X. This implies that

A. the demand for good X is inelastic.

B. the supply of good X is inelastic.
C. the elasticity of demand for good X is higher than the elasticity of supply of good X.
D. the elasticity of demand for good X is lower than the elasticity of supply of good X.

19. The following diagram shows the supply and demand curves for good X.
Price
S1 S2
S

D
0 Quantity
After the quota set on the good is adjusted, the supply curve of the good shifts from S1 to S2. In the market of the
good, the consumer surplus __________ while the producer surplus _____________.

A. will increase … may increase or decrease

B. will decrease … may increase or decrease
C. may increase or decrease … will increase
D. may increase or decrease … will decrease

20. Suppose the pre-tax Gini coefficient of an economy increased over the past 10 years while the post-tax Gini
coefficient decreased in the same period. Which of the following statements is CORRECT?

A. The average income of low-income households of the economy decreased over the past 10 years.
B. The general living standard declined over the past 10 years.
C. The tax system of the economy is likely to be progressive.
D. The Lorenz curve of the economy based on post-tax income was closer to the line of perfect income
inequality 10 years ago.

21. When a per-unit subsidy of $5 is provided to the producers of a good,

A. both consumer surplus and producer surplus would decrease.

B. the producer surplus would increase while the consumer surplus would decrease.
C. the market price would decrease by $5.
D. the sum of the increase in consumer surplus and producer surplus would be smaller than the total
amount of the subsidy provided.

22. After the opening of Hong Kong-Zhuhai-Macau Bridge, more tourists have visited Tung Chung. Some Tung
Chung residents complain about the noise created by them while the shops in Tung Chung have recorded higher
revenue. Which of the following statements about this situation is CORRECT?

A. The tourists should compensate Tung Chung residents for the nuisance.
B. Government intervention is required to improve efficiency.
C. The number of tourists deviates from its efficient level.
D. Efficiency would be improved if shops gave compensation to Tung Chung residents.

HKDSE-ECON 1-6 (Mock Test 19) © 2019 Aristo Educational Press Ltd.
23. Which of the following statements about equity is CORRECT?

A. Equity must be achieved in a planned economy while it may not be achieved in a market economy.
B. Policies that can equalise income may not help equalising opportunity.
C. Wealthy countries tends to aim at achieving efficiency instead of equity.
D. When there is a trade-off between equity and efficiency, efficiency should be a priority.

24. Refer to the following table.

Components $ million
Private consumption expenditure 350
Net domestic fixed capital formation 120
Changes in inventories -12
Government consumption expenditure 220
Total exports of goods 90
Imports of goods 15
Exports of services 18
Imports of services 25
Net income from abroad 13
Depreciation 8
Profits tax 16
Indirect taxes 9
Subsidies 3

Which of the following statements are CORRECT?

(1) The net exports was positive.

(2) The GDP at factor cost was $748 million.
(3) The GDP was smaller than the gross national income (GNI).

A. (1) and (2) only

B. (1) and (3) only
C. (2) and (3) only
D. (1), (2) and (3)

25. Suppose a closed economy produces good X and good Y only. The output of Year 1 and Year 2 are as follows:

Quantity of Unit price of Quantity of Unit price of

Year
good X (units) good X ($) good Y (units) good Y ($)
1 15 18 12 25
2 18 20 9 22

Which of the following statements is CORRECT?

A. The nominal GDP in Year 2 is higher than that in Year 1.

B. The real GDP in Year 2 is higher than that in Year 1.
C. The GDP deflator in Year 2 is higher than that in Year 1.
D. The general living standard in Year 2 is higher than that in Year 1.

HKDSE-ECON 1-7 (Mock Test 19) © 2019 Aristo Educational Press Ltd.
26. An inflationary (output) gap will exist if

A. the short run equilibrium output level is higher than the potential output level.
B. there is a persistent increase in general price level.
C. there is an upward pressure on input prices.
D. the nominal output is larger than the real output.

27. In the third quarter of 2018, Japan recorded a deflationary output gap for the first time in almost two years. Which
of the following policies can the government introduce to eliminate the output gap and increase the price level at
the same time?

A. The government increases the sales tax rate.

B. The government reduces the spending on social welfare.
C. The government decreases the spending on education.
D. The government increases the tax allowance of the salaries tax.

28. The following phenomena are observed in an economy:

(1) increasing number of job vacancies

(2) increasing amount of retail revenue
(3) decreasing number of bankruptcy petitions
(4) rising inflation rate

The economy is in the _______ phase of a business cycle.

A. trough
B. peak
C. recovery
D. recession

29. Which of the following events would most likely lead to an increase in the nominal interest rate?

A. National income rises and the use of electronic money becomes more widespread.
B. The stock market becomes more volatile and the central bank lowers the discount rate.
C. The liquidity of interest bearing assets decreases and the central bank raises the required reserve ratio.
D. The income payment interval changes from a monthly basis to a weekly basis and people expect a
higher price level.

30. Study the following balance sheet of a banking system. The amount of excess reserves in the banking system is
$50 million.

Assets ($ million) Liabilities ($ million)

Reserves 480 Deposits 1,720
Loans 1,240

Suppose the public always hold $100 million cash and the required reserve ratio is increased by 5%. Which of the
following statements about the banking system is CORRECT?

A. The monetary base will be $616 million.

B. The maximum banking multiplier will be 3.
C. The maximum possible amount of money supply will be $1,600 million.
D. The maximum possible amount of loans will be $1,120 million.

HKDSE-ECON 1-8 (Mock Test 19) © 2019 Aristo Educational Press Ltd.
31. Which of the following are included in Hong Kong’s money supply M2?

(1) savings deposits with licensed banks

(2) reserves held by licensed banks
(3) legal tender held by the non-bank public

A. (1) and (2) only

B. (1) and (3) only
C. (2) and (3) only
D. (1), (2) and (3)

32. Study the diagram below.

Change in
GDP deflator (%)

0 Year

Suppose people did not expect any change in the price level in the above period. In the above period,

A. there was deflation.

B. the nominal interest rate was lower than the realised real interest rate.
C. the cost of living was decreasing.
D. tenants who had signed a fixed rental contract gained.

33. Which of the following is NOT a function of the Hong Kong Monetary Authority?

A. to maintain the stability of the exchange rate of the Hong Kong dollar
B. to determine the deposit interest rate of commercial banks
C. to maintain Hong Kong’s status as an international financial centre
D. to promote the stability of the banking system

34. Last year, some university graduates in an economy joined the labour force, of which 95% found a job. Suppose
these university graduates did not replace any workers. The unemployment rate __________.

A. would increase
B. would decrease
C. would remain unchanged
D. might increase or decrease

35. The air passenger departure tax in Hong Kong is a/an ____________ because _________________.

A. direct tax …the entire tax burden is borne by passengers

B. indirect tax … the higher-income earners pay proportionately less tax
C. proportional tax … the tax payment is the same regardless of the income of passengers
D. regressive tax … the average tax rate decreases as income increases

HKDSE-ECON 1-9 (Mock Test 19) © 2019 Aristo Educational Press Ltd.
36. The following table shows the changes in the salaries tax structure of an economy.

Old system New system

Net chargeable income Tax rate Net chargeable income Tax rate
First $50 000 2% First $50 000 2%
Next $50 000 7% Next $50 000 7%
Next $50 000 12% Next $50 000 12%
Remainder 17% Next $50 000 15%
Remainder 17%

Standard rate 15% Standard rate 15%

Suppose the basic tax allowance is increased at the same time. Which of the following is most likely to be a result
of the above changes in the tax system?

A. More people will fall into the tax net.

B. The tax revenue collected from the salaries tax will decrease.
C. People’s work incentive will increase.
D. The government will run into a budget deficit.

37. According to the classical quantity theory of money, which of the following statements is CORRECT?

A. An increase in money supply would lead to a higher price level and real output.
B. Any change in the price level would lead to the same proportional change in money supply.
C. Changes in money supply would have no effect on the real output.
D. Both velocity of circulation of money and nominal output are assumed to be constant.

38. Suppose an economy initially operates at the full-employment equilibrium and the government expenditure equals
its tax revenue. Supposing there is a stock market crash, there will be ___________ and ___________.

A. a deflationary (output) gap … fiscal deficit

B. a deflationary (output) gap … fiscal surplus
C. an inflationary (output) gap … fiscal deficit
D. an inflationary (output) gap … fiscal surplus

HKDSE-ECON 1-10 (Mock Test 19) © 2019 Aristo Educational Press Ltd.
39. The diagram below shows the aggregate demand (AD) curves, the short run aggregate supply (SRAS) curves and
the long run aggregate supply (LRAS) curves of an economy. The economy initially operates at E0 and the
potential output level is Y1. The long run equilibrium will be at _____________.

Price level
LRAS
SRAS1
SRAS0
E1
E3
E0
E2

AD0
AD1
0 Y1 Quantity of output
(real GDP)
A. E0
B. E1
C. E2
D. E3

40. The consumption tax in Japan is imposed on the consumption of all goods and services. The Japanese government
proposed to raise the consumption tax rate from 8% to 10% by October 2019. The increase in the consumption tax
rate would lead to _____________.

A. inflation
B. a wider tax base
C. a more uneven income distribution
D. a higher aggregate output

41. A country has a comparative advantage in producing good X. Which of the following statements about this
country is CORRECT?

A. The country has an absolute advantage in producing good X.

B. The country can produce the same amount of good X with fewer resources than other countries.
C. The country would enjoy a larger gain from trade than its trading partners.
D. In producing 1 unit of good X, it forgoes a smaller amount of another good than other countries.

42. The following table shows data about Country A.

Good X Good Y
(units) (units)
Total output with no international trade 30 and 30
Total output with specialisation and
120 and 0
international trade
Total consumption with international trade 90 and 60

Which of the following statements about Country A is CORRECT?

A. The opportunity cost of producing 1 unit of Good X is 1 unit of Good Y.

B. With one unit of resources, Country A can produce same amount of Good X or Good Y.
C. The gain from trade of exporting 1 unit of Good X is 5/3 units of Good Y.
D. The terms of trade is 1X = 2/3Y.

HKDSE-ECON 1-11 (Mock Test 19) © 2019 Aristo Educational Press Ltd.
43. Consider a small open economy with an import tariff imposed on a good. If the economy reduced the tariff rate on
the good, which of the following statements are CORRECT?

(1) The domestic consumption would increase.

(2) The revenue of domestic producers would decrease.
(3) The total amount of tariff revenue would decrease.

A. (1) and (2) only

B. (1) and (3) only
C. (2) and (3) only
D. (1), (2) and (3)

44. The following table shows information about the balance of payments of a country:

$ million
Visible trade 15
Invisible trade X
Net income from abroad -5
Capital inflow 28
Capital outflow 40

Suppose the amount of foreign exchange reserves of the country decreases by $20 million. Which of the
following statements are CORRECT?

(1) There is an invisible trade deficit of $18 million.

(2) There is a current account deficit of $8 million.
(3) There is a balance of payment surplus of $20 million.

A. (1) and (2) only

B. (1) and (3) only
C. (2) and (3) only
D. (1), (2) and (3)

45. When a country’s currency ___________ against its trading partners’ currencies, the total import value (in terms
of domestic currency) will increase if the country’s demand for imports is ____________.

A. appreciates … inelastic
B. appreciates … elastic
C. depreciates … unitary elastic
D. depreciates … elastic

END OF PAPER

HKDSE-ECON 1-12 (Mock Test 19) © 2019 Aristo Educational Press Ltd.