ARISTO EDUCATIONAL PRESS

HONG KONG DIPLOMA OF SECONDARY EDUCATION EXAMINATION

ECONOMICS PAPER 1
(Mock Test 22)

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 22) © 2020 Aristo Educational Press Ltd.
There are 45 questions in this paper. Choose the BEST answer for each question.

1. Mr. Chan planned to visit Wuhan in China. He was informed that there was an outbreak of the novel coronavirus
in Wuhan before setting off for the city. The opportunity cost for Mr. Chan to continue going to Wuhan would
_____________ because _____________.

A. increase … he had to buy masks to prevent infection before setting off for the city
B. increase … there was a higher chance for him to get infected
C. remain unchanged … the number of days he would stay in the city did not change
D. decrease … tourist attractions in the city might be temporarily closed

2. Which of the following cases are related to the problem of ‘for whom to produce’?

(1) A Japanese restaurant introduces a vegetarian menu.

(2) The government raises the maximum income limit for public rental housing.
(3) A university increases the number of places to admit more overseas students.

A. (1) and (2) only

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

3. Which of the following statements about public corporations in Hong Kong is CORRECT?

A. Public corporations will not suffer a loss.

B. Staff of public corporations are civil servants.
C. The services provided by public corporations are all free of charge.
D. Public corporations are financially independent of the government.

4. The owners of a firm bear unlimited liability. If they want to expand the business, they can _____________ to
raise capital.

(1) invite other people to join the firm and be an owner

(2) borrow from banks
(3) issue shares to the public

A. (1) and (2) only

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

5. The weather forecast service provided by Hong Kong Observatory is a ____________.

A. public good because it is provided by a government department

B. public good because it can be consumed by many people concurrently
C. free good because the cost of serving an additional person is zero
D. free good because people do not need to pay for the weather forecast service

HKDSE-ECON 1-2 (Mock Test 22) © 2020 Aristo Educational Press Ltd.
6. Which of the following are capital of a zoo?

(1) the zoo guides

(2) the drinks brought into the zoo by the visitors
(3) the travel brochures printed by the zoo
(4) the animals raised in the zoo

A. (1) and (2) only

B. (1) and (3) only
C. (3) and (4) only
D. (2), (3) and (4) only

7. Which of the following measures may raise the labour supply and average labour productivity of Hong Kong at
the same time?

A. setting statutory maximum working hours

B. providing a subsidy to enterprises for installing advanced machines
C. providing more on-the-job training for workers
D. relaxing licensing requirements for overseas specialist doctors to work in Hong Kong

8. Some restaurants allow their waiters to keep the tips given by the customers for themselves while some require
their waiters to hand over all the tips.

Compared to the restaurants that require their waiters to hand over all the tips, the restaurants that allow their
waiters to keep the tips

(1) have a lower cost of monitoring the performance of the waiters.

(2) transfer part of the business risk to the waiters.
(3) have a lower cost of measuring the output of the waiters.

A. (1) and (2) only

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

9. Hong Kong Television Network Limited (stock code: 1137) operates an online shopping platform. In February
2020, the company announced that it had purchased mask machines from overseas and expanded its business into
mask production. Which of the following is the LEAST likely motive behind the expansion?

A. to earn a higher profit for the company

B. to extend its brand name to other products
C. to spread risk by business diversification
D. to reduce competition

HKDSE-ECON 1-3 (Mock Test 22) © 2020 Aristo Educational Press Ltd.
10. The table below shows the cost-output relationship of a price-taking firm.

Total output (units) Average variable cost ($)

1 2
2 3
3 4
4 5
5 6

Suppose the market price is $6 and the fixed cost is $1. What is the profit of the firm?

A. −$1
B. $3
C. $5
D. $12

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

A. When the lump-sum delivery fee for online shopping increases, consumers tend to buy more every
time they purchase.
B. When the government imposes an ad valorem tax on all first-hand residential properties, the average
quality of residential properties sold increases.
C. When the airport departure tax, which charges a fixed amount for any passenger, is abolished, the
number of short-distance trips increases by a smaller percentage than the number of long-distance
trips.
D. After the fixed penalty for illegal parking is raised, the number of illegal parking prosecutions
decreases.

12. Suppose wearing leather shoes becomes more popular. This will lead to a decrease in the __________ leather
belts if leather belts and leather shoes are in _______________.

A. supply of … competitive supply

B. supply of … joint supply
C. demand for … competitive demand
D. demand for … joint demand

13. The Hong Kong government considers raising the environmental levy on plastic shopping bags from $0.5 to $1
each. This measure will lead to an increase in __________.

A. the supply of plastic shopping bags

B. the government revenue from the levy
C. consumers’ total expenditure on non-woven shopping bags
D. consumers’ total expenditure on plastic shopping bags

14. When a government imposes a per-unit tax on a good, consumers’ tax burden is equal to producers’ tax burden.
This implies that

A. the market price of the good remains unchanged.

B. the demand for the good is unitarily elastic.
C. the demand for the good is perfectly inelastic.
D. the demand for the good is as elastic as the supply of it.

HKDSE-ECON 1-4 (Mock Test 22) © 2020 Aristo Educational Press Ltd.
15. Refer to the following demand and supply schedules for good X.

Unit price ($) 12 14 16 18 20

Quantity demanded (units) 8 7 6 5 4
Quantity supplied (units) 4 5 6 7 8

Suppose the government increases the price ceiling from $12 to $14. According to the above table, which of the
following statements is CORRECT?

A. The surplus of good X will decrease by 2 units.

B. It will be more difficult for poor people to buy good X.
C. The quantity transacted will decrease by 1 unit.
D. Consumers’ total expenditure on good X will increase by $22.

16. The following is the demand-supply diagram of good X.

Price ($)

24
E
20

16

D
0 Quantity (units)
12 15 18
Suppose the initial equilibrium point is point E. Which of the following statements is CORRECT?

A. If the government provides a per-unit subsidy of $8 for good X, total revenue including the subsidy
will decrease by $12.
B. If the government sets a price floor on good X at $22, the quantity transacted will be between 12 units
and 15 units.
C. If the government imposes a quota of 18 units on good X, the market price will increase by $4.
D. If the government imposes a per-unit tax of $8 on good X, consumers’ tax burden will be $96.

17. In Hong Kong, the charges of telecommunications service providers are different. This is because

A. some consumers are richer.

B. there are many telecommunications service providers in the market.
C. the services provided by telecommunications service providers are heterogeneous.
D. huge investment is required to enter the telecommunications service market.

18. After a famous basketball player passed away, the prices of his second-hand signature basketball shoes have
increased by around 6 times.

The above case illustrates the ___________ function of price because ___________.

A. allocative … the prices transmit information about consumer preference to the producers
B. allocative … the producers can increase the supply to earn a higher profit
C. rationing … the shoes were distributed to the fans who love him the most
D. rationing … the shoes were distributed to the highest-valued buyers

HKDSE-ECON 1-5 (Mock Test 22) © 2020 Aristo Educational Press Ltd.
19. If there is an increase in people’s acceptance of electronic books, the marginal cost of electronic books will
_____________ and the consumer surplus ____________.

A. increase … will increase

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

20. The Hong Kong government has not issued urban taxi licences since 1994. In recent years, there has been an
increasing number of people using illegal private car hire services (commonly known as ‘white licence car
services’). Which of the following statements is CORRECT?

A. The marginal benefit of urban taxi licences would decrease.

B. The quantity demanded of urban taxi licences would decrease.
C. There would be a surplus of urban taxi licences.
D. The total value of urban taxi licences might increase, decrease or remain unchanged.

21. The Hong Kong government plans to provide a cash allowance for people who are unemployed for one month or
longer through the Community Care Fund. Which of the following statements about the measure is CORRECT?

A. This will lead to an increase in the unemployment rate because people’s opportunity cost of quitting
their jobs will decrease.
B. This will help equalise opportunities because the unemployed will tend to have a higher incentive to
look for a job.
C. This will increase income inequality because the employed cannot enjoy the cash allowance.
D. This will increase the gross domestic product because government consumption expenditure will
increase.

22. Refer to the following policies.

Policy (1): raise the standard tax rate of the salaries tax
Policy (2): provide extra cash allowance for receivers of Comprehensive Social Security Assistance Scheme
Policy (3): provide a public transport subsidy for working people

Which of the above policies can reduce the post-tax post-social transfer Gini coefficient?

A. (1) and (2) only

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

23. A Hong Kong resident received rental income from a residential property in Japan. Hong Kong’s gross domestic
product of the current year would _________ while the gross national income would _________.

A. increase … increase
B. increase … remain unchanged
C. remain unchanged … increase
D. remain unchanged … remain unchanged

HKDSE-ECON 1-6 (Mock Test 22) © 2020 Aristo Educational Press Ltd.
24. Suppose a closed economy produces rice and garments only. The output of Year 1 and Year 2 are as follows:

Unit price Output of rice Unit price of Output of

Year
of rice ($) (units) garments ($) garments (units)
1 10 48 6 24
2 11 50 7 20

Which of the following statements about the economy are CORRECT?

(1) The nominal GDP in Year 1 is lower than that in Year 2.

(2) The real GDP in Year 1 is lower than that in Year 2.
(3) The purchasing power of money in Year 1 is higher than that in Year 2.

A. (1) and (2) only

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

25. The general price level of Country A decreases by 1%. Its population and nominal GDP increase by 4% and 2%
respectively. As a result, the per capita nominal GDP of Country A will __________ and its per capita real GDP
will __________.

A. increase … increase
B. increase … decrease
C. decrease … increase
D. decrease … decrease

26. The government of a country plans to build a theme park to attract more tourists. Which of the following best
illustrates the effect of the above plan on the country ten years later?
A. B.
Price level Price level
SRAS2 SRAS1
SRAS1 SRAS2

AD2
AD1 AD

0 Aggregate output 0 Aggregate output

C. D.
Price level Price level
LRAS1 LRAS2 LRAS1 LRAS2

AD2
AD1 AD
0 Aggregate output 0 Aggregate output

HKDSE-ECON 1-7 (Mock Test 22) © 2020 Aristo Educational Press Ltd.
27. William wants to deposit HK$180,000 for two months in an authorised institution in Hong Kong. Which of the
following types of account can he choose and earn the highest return?

A. a current account with a licensed bank

B. a time deposit account with a licensed bank
C. a time deposit account with a restricted licence bank
D. a time deposit account with a deposit-taking company

28. Winnie withdraws HK$300,000 from her current account with a licensed bank. Then she keeps HK$50,000 at
home. She deposits HK$100,000 into her savings account and remits the remainder overseas.

What will be the immediate effect of the above actions on the Hong Kong dollar money supply?

A. M1 will decrease by HK$250,000 and M2 will decrease by HK$50,000.

B. M1 will decrease by HK$250,000 and M2 will decrease by HK$150,000.
C. M2 will increase by HK$100,000 and M3 will decrease by HK$150,000.
D. M2 will remain unchanged and M3 will decrease by HK$150,000.

29. Refer to the following information about an economy.

Monetary base $2,000

Actual banking multiplier 3
Required reserves $1,000

Suppose the public always hold $500 cash. Which of the following statements is CORRECT?

A. The maximum banking multiplier is 4.

B. The banking system can expand its total deposits to $9,000.
C. The maximum possible amount of loans is $5,250.
D. The maximum possible amount of money supply is $6,750.

30. 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 stock market becomes more volatile and the central bank reduces the required reserve ratio. The new
equilibrium point will be at __________.

A. A
B. B
C. C
D. D

HKDSE-ECON 1-8 (Mock Test 22) © 2020 Aristo Educational Press Ltd.
31. The diagram below shows the growth rate of GDP deflator of Country A.
Growth rate of
GDP deflator (%)

0 Year

During the above period,

A. the money supply is increasing.

B. the general price level remains unchanged.
C. the nominal GDP is equal to the real GDP.
D. the purchasing power of money is decreasing.

32. Assume that the nominal interest rate is 4% and the expected inflation rate is 2%. If the actual inflation rate is 3%,
______________.

A. the cost of holding money will be 4%

B. the nominal rate of return on holding money will be 1%
C. people who receive a fixed amount of monthly unemployment benefit will gain
D. people who pay a fixed amount of monthly rental payment will lose

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

A. If the price level increases, the money supply will increase by the same percentage.
B. If the money supply increases, the price level may decrease.
C. If the money supply increases by 5%, the nominal output may increase by less than 5%.
D. If the nominal output increases, the velocity of circulation of money will increase.

34. Country A’s government recruits retired medical staff to fill job vacancies. Country A’s labour force will
__________ and the unemployment rate will __________.

A. increase … remain unchanged

B. increase … decrease
C. remain unchanged … remain unchanged
D. remain unchanged … decrease

35. Which of the following will reduce the effectiveness of an expansionary monetary policy on real output?

A. There is insufficient demand for loans.

B. The public deposit most of their cash into the banking system.
C. The required reserve ratio decreases.
D. The actual reserves of commercial banks are lower than the required reserves.

HKDSE-ECON 1-9 (Mock Test 22) © 2020 Aristo Educational Press Ltd.
36. Refer to the following AS-AD diagram.

Price level
LRAS
SRAS

E1

AD
0 Aggregate output

The economy initially operates at E1. Which of the following policies can help restore the economy to its long
run equilibrium?

A. increasing the required reserve ratio

B. raising the statutory minimum wage rate
C. simplifying the procedures for importing foreign labour
D. selling government bonds in the open market

37. Suppose there is a deflationary gap in a country. An academic suggests the government reduce the discount rate or
increase the production subsidy for small-sized enterprises to restore the economy to its long run equilibrium.
Which of the following is the advantage of an increase the production subsidy for small-sized enterprises over a
reduction in the discount rate to narrow the deflationary gap?

A. Income distribution will be more even.

B. The unemployment rate will be lower.
C. The real output level will be higher.
D. The cost of living will be lower.

38. Some stakeholders from the hotel industry suggest the government exempt them from paying rates to help the
industry cope with the impact of a reduction in the number of tourists. Which of the following statements about
the suggestion is CORRECT?

A. Hotel rates will increase.

B. Hong Kong’s general price level will increase.
C. The proportion of direct tax revenue in total government revenue will increase.
D. There will be a fiscal deficit.

HKDSE-ECON 1-10 (Mock Test 22) © 2020 Aristo Educational Press Ltd.
Answer Questions 39 and 40 by referring to the following information.

39. Suppose the labour requirement for the production of computers and rice in Japan and Thailand is as follows:

1 unit of computers 1 unit of rice

Japan 2.5 man-hours 1 man-hour
Thailand 4 man-hours 0.5 man-hours

According to the above table, which of the following statements are CORRECT?

(1) Thailand has a comparative advantage and an absolute advantage in producing rice.
(2) Japan has a comparative advantage and an absolute advantage in producing computers.
(3) Thailand has a comparative advantage in producing rice but has no absolute advantage in producing
it.
(4) Japan has a comparative advantage in producing computers but has no absolute advantage in
producing it.

A. (1) and (2) only

B. (1) and (4) only
C. (2) and (3) only
D. (3) and (4) only

40. Suppose the transportation cost for 1 unit of rice is 0.1 units of computers and it is borne by the exporting country.
Which of the following is the mutually beneficial terms of trade between Japan and Thailand?

A. 1 unit of rice = 0.2 units of computers

B. 1 unit of rice = 0.3 units of computers
C. 1 unit of computers = 0.55 units of rice
D. 1 unit of computers = 2.45 units of rice

41. The following diagram shows the imposition of an import quota on good X in a small open economy.

Unit price
PW = World price
S
Sq

PW
Import quota
D1
0 Quantity

Suppose the price of the factors of production for producing good X increases. Which of the following statements
are CORRECT?

(1) The import volume of good X will remain unchanged.

(2) The domestic price of good X will increase.
(3) The quantity of domestically produced good X will increase.

A. (1) and (2) only

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

HKDSE-ECON 1-11 (Mock Test 22) © 2020 Aristo Educational Press Ltd.
42. An economy initially operates at its long run equilibrium and the total import value equals total export value.
Suppose people’s desire to save increases. In the short run, there will be ___________ and ___________.

A. a deflationary (output) gap … a trade surplus

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

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

Items $ million
Visible trade 55
Invisible trade X
Net factor income from abroad 15
Capital inflow 18
Capital outflow 24
Increase in reserve assets 30

Which of the following statements is CORRECT?

A. There is an invisible trade surplus of $19 million.

B. The current account deficit is $36 million.
C. The balance of payments surplus is $30 million.
D. The country’s gross domestic product is greater than its gross national income.

44. The exchange rates of the Hong Kong dollar (HKD) against the Australian dollar (AUD) and the US dollar (USD)
between October and December 2019 were as follows:

Date Price of 1 unit of AUD Price of 1 unit of USD

October 2019 5.33 HKD 7.843 HKD
November 2019 5.35 HKD 7.830 HKD
December 2019 5.37 HKD 7.807 HKD
（Source: Census and Statistics Department, HKSAR Government)

Which of the following would be a result of the above changes in the exchange rates?

A. The competitiveness of Hong Kong exports to Australia would decrease.

B. The number of US tourists to Australia would decrease.
C. The prices (in terms of USD) of US exports to Australia would increase.
D. The total value (in terms of AUD) of Hong Kong exports to Australia would decrease.

45. Which of the following statements about the linked exchange rate system of Hong Kong is CORRECT?

A. The public can exchange for US dollars at the linked rate with the Hong Kong Monetary Authority.
B. The Hong Kong dollar is linked to various currencies such as the US dollar, the euro and the
renminbi.
C. The market exchange rate of the Hong Kong dollar against the US dollar is determined by market
force.
D. The money supply (M3) of Hong Kong is fully backed up by the US dollar.

END OF PAPER

HKDSE-ECON 1-12 (Mock Test 22) © 2020 Aristo Educational Press Ltd.