2021-2022

ECON
PAPER 1

Bishop Hall Jubilee School

2021-2022 Mock Examination

F.6 ECONOMICS PAPER 1

Date: 14/2/2022
Time: 8:20 am - 9:20 am (1 hour)
Total page no.: 14 (including cover page)

INSTRUCTIONS

1. Read carefully the instructions on the Answer Sheet. After the announcement of the start of the
examination, you should first write your name, class and class number in the space provided on the Answer
Sheet. No extra time will be given for writing your information after the ‘Time is up’ announcement.

2. When told to open this book you should check that all the question 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 marks can be completely erased with a clean rubber. You must mark the answers
clearly; otherwise you will lose marks if the answer 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.

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There are 45 questions in this paper. Choose the BEST answer for each question.

1. Which of the following are positive statements?

(1) The agriculture sector accounts for less than 1% of Hong Kong’s GDP.
(2) Hong Kong should develop agriculture to become less dependent on food imports.
(3) Locally-produced fruits and vegetables are very far from meeting the needs of Hong Kong.
(4) If large areas of agricultural land are used for building public housing estates, the waiting time for public
housing will be reduced to three years or less.

A. (2) and (3) only

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

2. Nan Fung Cotton Mills (南豐紗廠) was once the most productive textile mill in Hong Kong. Later, Nan Fung
Group redeveloped the mill into an arts and retail complex. This is an example of using ___________ to solve the
problem of ____________.

A. market mechanism … ‘what to produce’

B. market mechanism … ‘how to produce’
C. government command … ‘what to produce’
D. government command … ‘how to produce’

3. Jackson spent $6,000,000 on a flat in Tsuen Wan. He can either live in the flat himself or lease it out. Which of the
following would reduce his opportunity cost of living in the flat himself?
A. The management fee of the flat increased.
B. The view from the flat was blocked by a new building.
C. The average market rental value of flats in Tsuen Wan decreased.
D. The interest rate of the mortgage loan that Jackson borrowed decreased.

4. The table below show the cost-output relationship of a price-taking firm.

Total output (units) 1 2 3 4 5

Fixed cost ($) 15 15 15 15 15
Total variable cost ($) 5 14 27 44 65

If the profit-maximising output is 4 units, the market price and the profit are ___________ and ___________
respectively.

A. $17 …… $1
B. $17 …… $9
C. $44 …… $9
D. $44 …… $117

5. A tutorial centre decides to close at 7pm instead of 8pm in order to encourage students to have more leisure time
at night. Which of the following is the cost that can be saved after business hours are reduced?

A. salary of the human resources manager

B. rental payment
C. expenses on installing projectors in the classrooms
D. electricity charges

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6. The table below shows information about a factory. Machines and labor are the only inputs of the factory.
Suppose the factory employs 5 units of machines and 8 units of labor.

Quantity of labor on leave (units) Drop in total output (units)

1 100
2 300
3 600
4 1,000
5 1,350

Which of the following statements about the factory is CORRECT?

A. The productivity of the 4th unit of labour is the highest.
B. The marginal product of the 2nd unit of labour is 200 units.
C. The law of diminishing marginal returns applies to the factory.
D. The drop in total output is less than 1,350 units when six units of labour are on leave.

7. In Hong Kong, which of the following is a feature of a private limited company?

A. It is less profitable than a public limited company.

B. It operates on a larger scale than sole proprietorships and partnerships.
C. There is no upper limit on the number of owners.
D. Its shareholders may not be involved in the company’s management.

8. Making an online video involves different job roles, such as actors, photographers, makeup artists and directors.
Which of the following is an advantage of the above arrangement?

A. Workers are less likely to be unemployed.

B. Workers specialising in one task will find their job more interesting.
C. The best people can be chosen for each job.
D. Workers have stronger incentive to work as teamwork creates a pleasant atmosphere.

9. In September, 2019, the Hong Kong Exchanges and Clearing (stock code: 0388) made a bid to take over the
London Stock Exchange. Which of the following is the LEAST likely motive behind this expansion plan?

A. to reduce competition
B. to ensure a higher profit
C. to enjoy economies of scale
D. to expand business to other markets

10. Which of the following belongs to external economies of scale?

A. A bank lowers the interest rate because of the good credibility of an enterprise.
B. An enterprise acquires a company of the same industry in order to increase its market share.
C. Firms in the industrial estate employ the same security company in order to reduce security fee.
D. An enterprise reduces its cost of production after inventing a new technology.

11. Which of the following will increase the elasticity of demand for pay television programme services?

A. More free videos are available online.

B. A lower fee is charged for pay television programme services.
C. Some free television providers shut down.
D. The quality of pay television programme services improves.

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12. The World Cup 2018 held in Russia attracted millions of tourists. When the World Cup was being held, many
hotels were fully booked and some visitors were unable to reserve a room even though they were willing to pay
the prices set by the hotels. This shows that

(1) there was an excess demand for hotel rooms.

(2) the opportunity cost of renting a hotel room was the room price.
(3) the equilibrium prices of hotel rooms were higher than the prevailing prices.

A. (1) and (2) only

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

13. The diagram below shows the demand and supply curves of oil. The original equilibrium point is E0.

Unit price

S2
E2 S0
S1
E0
E1 E3

E4
D1
D0
D2
0 Quantity

Suppose more firms use renewable energy for power generation. Meanwhile, oil facilities in some oil producing
countries are attacked and damaged. The new equilibrium point is _____________.

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

14. Refer to the following demand-supply schedule of good X.

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

5 10 22
6 12 20
7 14 18
8 16 16
9 18 14
10 20 12
11 22 10

After the government lowers the effective quota on good X to 10 units, the market price of good X changes by $2.
Which of the following statements is CORRECT?

A. The change in consumer surplus is uncertain.

B. Total social surplus increases.
C. The total revenue of producers will decrease by $48.
D. Consumers’ total expenditure on good X will decrease by $16.

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15. After bubble milk tea (珍珠奶茶) gains wide popularity in Japan, its price and quantity transacted increase by
20% and 300% respectively. We can conclude that

A. the demand for bubble milk tea is elastic.

B. the supply for bubble milk tea is elastic.
C. the demand for bubble milk tea is inelastic.
D. the supply for bubble milk tea is inelastic.

16. Refer to the following demand-supply schedule of a good.

Unit price ($) 24 27 30 33 36

Quantity supplied (units) 15 16 17 18 19
Quantity demanded (units) 17 16 15 14 13

If the government imposes a $6 per-unit tax on the good,

A. its market price will increase by $6.

B. total tax revenue will be $102.
C. buyer’s total expenditure will increase by $18.
D. The tax burdens of buyers is greater than that of sellers.

17. Which of the following will cause the wage rate of local construction workers to increase?

A. The government starts to construct more residential buildings.

B. More young people enter the construction industry.
C. The government announces that it will speed up the procedure of foreign labour importation.
D. The basic entry requirement of the construction industry decreases

18. On June 19, 2019, the Hong Kong and Shanghai Banking Corporation Limited announced the abolishment of
minimum-balance fees for personal bank accounts. Later on the same day, Bank of China (Hong Kong) and
Standard Chartered Hong Kong made the same move and cancelled the minimum-balance fees for personal bank
accounts.

Which of the following is the MOST likely explanation for the above phenomenon?

A. The market is jointly controlled by several large banks.

B. Banks are interdependent in their strategies.
C. Services provided by different banks are homogenous.
D. The banking industry in Hong Kong is perfectly competitive.

19. Read the information about Country A.

2010 2020
Gini coefficient 0.52 0.54
Post-tax Gini coefficient 0.47 0.44

Which of the following is probably correct about Country A?

A. The tax system tended to be more progressive in 2020

B. Income inequality decreased before the adjustment of tax from 2010 to 2020.
C. The problem of poverty became worse in 2020
D. The government should further increase the tax rate to reduce income inequality.

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20. Refer to the following news extract:

The government announced a scheme under which tablet computers would be provided
to tertiary students for educational purposes. All students enrolled in local tertiary
programmes are eligible to this scheme. The tablet computers provided cannot be resold
for profit and should be returned upon graduation or dropout.

Which of the following statements is CORRECT?

A. The plan does not help equalise income, as students cannot resell the tablet computers for profit.
B. The plan does not help equalise opportunities, as tablet computers are not necessities for learning.
C. The plan helps equalising opportunities, as it helps raise the productivity of students from middle-and
low income groups.
D. Since all students can get a tablet computer, income distribution will remain unchanged.

21. The government imposes an effective price ceiling on bottled water. At the same time, the production cost of
bottled water increases. The producer surplus of bottled water ______________.

A. will increase
B. will decrease
C. may increase or decrease
D. will remain unchanged

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

Price
S

D1 D2
0 Quantity

The marginal cost of good X will _____________, and consumer surplus _____________.

A. increase … will increase

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

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23. The table below shows the GDP data of an economy in two years.

Growth rate (relative to the previous year) (%)

Year 1 Year 2
Per capita nominal GDP 5 5
Per capita real GDP 2 3
Population -2 -2

Which of the following statements about the economy is CORRECT?

A. Population remained unchanged from year 1 to year 2.

B. The general price level fell in year 2.
C. Real output increased in year 2.
D. In year 2, nominal GDP was higher than real GDP.

24. Which of the following will push up the unemployment rate of a country?

A. The government lowers the statutory minimum wage level.

B. The government provides financial assistance to the long-term unemployed.
C. There is a significant increase in university places.
D. The government raises the subsidies for small and medium enterprises.

25. Which of the following are included in the calculation of Hong Kong’s GDP?

(1) Income earned by a foreign domestic helper working in Hong Kong

(2) Income earned by a Hong Kong investor who held a seminar in Hong Kong on investing in properties in
Japan
(3) Rental income earned by a retired Hong Kong businessman from leasing his property in the United
Kingdom

A. (1) and (2) only

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

26. The following shows the production chain of a good in economy X.

Materials from local $60 $210 $340 Overseas

producers Local
retailers consumers
Local
producers $510
Imported materials $80 $190 Overseas
Local
from overseas consumers ($60 tax
inclusive) consumers

The contributions of local producers and local retailers to the economy’s GDP at factor cost are __________ and
__________ respectively.

A. $260 … $390
B. $260 … $580
C. $320 … $580
D. $320 … $700

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27. Country A imports a large number of workers from Country B. Which of the following will cause Country A’s
short run aggregate supply curve to shift to the left?

A. Country A announces that it would abolish the quota on imported workers.

B. Firms in Country A adopt automated production technology to replace labour.
C. The average education level of labour in Country B increases.
D. Country B is in the phase of recovery, where the average wage level of its labour increases.

28. Refer to the following balance sheet of a banking system in an economy. Suppose the economy has a monetary
base of $500 million, and the banking system has excess reserves of $30 million.

Assets ($ million) Liabilities ($ million)

Reserves 300 Deposits 1,080
Loans 780

Suppose the public deposit all the cash into the banks and the banks no longer hold excess reserves. After the
deposit creation process is completed, which of the following statements about the banking system is
CORRECT?

A. Its monetary base will decrease by $200 million.

B. Its reserves will increase by $20 million.
C. Loans will increase by $1,500 million.
D. Its money supply will increase by $120 million.

29. In the first half of 2019, the Hong Kong Monetary Authority (HKMA) has issued several virtual banking licences
(虛擬銀行牌照) to allow qualified applicants to run virtual banking business. A HKMA spokesperson said they
would assess the financial capability and risk management capability of applicants when considering applications.

In the above case, which central bank function does the HKMA perform?

A. to act as a clearing house for transactions between commercial banks

B. to act as the government’s adviser
C. to supervise the monetary sector
D. to manage the foreign reserves

30. Refer to the following news extract.

Social networking website Facebook proposes to introduce Libra, a new cryptocurrency that can be used to
pay for public transport and make retail purchases in the future. According to Facebook, Libra would be
pegged to the US dollar, the Euro, the Japanese yen, the British pound and the Singapore dollar at fixed rates
to maintain its stability.

According to the above information, which functions of money can Libra perform?
(1) store of value
(2) standard of deferred payment
(3) medium of exchange

A. (1) and (2) only

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

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31. Refer to the following information about money supply in Hong Kong.
Component $ billion
Total value of legal tender notes and coins issued 350
Total value of legal tender notes and coins in public circulation 280
Demand deposits 150
Savings deposits with licensed banks 520
All types of deposits with licensed banks 1,280
NCDs issued by licensed banks (and not held by authorised institutions) 140
Deposits with restricted licence banks and deposit-taking companies 550
NCDs issued by restricted licence banks and deposit-taking companies (and not 130
held by authorised institutions)

Money supply M2 equals __________.

A. $430 billion
B. $1,700 billion
C. $1,770 billion
D. $2,370 billion

32. Suppose the nominal interest rate is 3%, and the general price level is expected to remain unchanged. If the actual
deflation rate is 4%, which of the following statements is CORRECT?

A. University scholarship holders who receive a fixed amount of money will lose.
B. The cost of holding cash is negative.
C. Expected real interest rate will be lower than the actual real interest rate.
D. The actual rate of return on holding cash is negative.

33. Refer to the table below.

Policy I Policy II Policy III

⚫ Raise the required ⚫ Relax the requirements for ⚫ Lower the discount rate
reserve ratio for obtaining a stored value ⚫ Lower the required reserve
commercial banks payment system licence ratio for commercial banks
⚫ Sell government bonds ⚫ Buy government bonds in the
in the open market open market

Which of the above policies would cause the nominal interest rate to fall?

A. policy I only
B. policy II only
C. policy III only
D. policy II and policy III only

34. On August 15, 2019, Financial Secretary Paul Chan Mo-po announced a 100% reduction in salaries tax for
2018/19, subject to a ceiling of $20,000. This measure would _________________.

A. narrow the income gap between the rich and the poor
B. increase the government expenditure
C. increase the consumption expenditure of Hong Kong people
D. broaden the tax base

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35. Refer to the following diagram.

Growth rate (%)

Money supply

General Price Level

0 Year

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

A. Real output is increasing.

B. Nominal output is decreasing.
C. Cost of living is decreasing.
D. The velocity of circulation of money is increasing.

36. Which of the following is a difference between progressive tax and regressive tax?

A. Progressive tax violates Adam Smith’s equity principle of taxation, but regressive tax does not.
B. A regressive tax system builds up a broader tax base than a progressive tax system.
C. A regressive tax system allows the government to collect more tax.
D. The income distribution becomes more even under a progressive tax system than under a regressive
one.

37. The chart below shows the Composite Consumer Price Index of Hong Kong from 2010 to 2018.

Composite Consumer Price Index

120 104.5 107
100.6 103
93.5 97.7
100 86.1 89.6
81.8
80

60

40

20

0
2010 2011 2012 2013 2014 2015 2016 2017 2018
Year

(Source: Census and Statistics Department, HKSAR Government)

According to the above chart, within the given period,
A. consumers’ standard of living kept falling.
B. The implicit price deflator of GDP increased.
C. The purchasing power of money decreased.
D. The Composite Consumer Price Index kept rising at an increasing rate.

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38. A country increases a sales tax imposed on sellers from 8% to 10%. At the same time, shopping coupons are
provided by the government to low-income families.

Which of the following diagrams can best illustrate the effect of the above two policies on aggregate output?

A. B.
Price level SRAS2 Price level SRAS1
SRAS1 SRAS2

AD2 AD2
AD1 AD1

0 Aggregate output 0 Aggregate output

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

AD2 AD1
AD1 AD2
0 Aggregate output 0 Aggregate output

39. Which of the following would reduce the short run and long run aggregate supply of an economy?

A. The government cuts tax rebates on firms’ expenditure on research and development.
B. More local consumers choose to consume in neighbouring countries.
C. Economic recession leads to a decrease in the desire to consume, and some producers shut down their
businesses.
D. A typhoon attack causes widespread power failure across the country.

40. Suppose an economy has a fiscal deficit and a deflationary (output) gap exists. _______________ would help
reduce the deflationary (output) gap without worsening the fiscal deficit.

A. An increase in the government’s transfer payments

B. The central bank buying government bonds from the public
C. Reducing government expenditure on public services
D. Raising the required reserve ratio

41. Which of the following is/are contractionary fiscal policy/policies?

(1) The central bank selling government bonds to the public

(2) The government imposes vacancy tax on first-hand residential properties
(3) The government introduces wage cuts on civil servants

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

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42. Before trade, Country A and Country B each uses 40% of their resources on producing watches and the rest on
producing bread. The output of the two countries are as below:

Watches (units) Bread (units)

Country A 30 AND 60
Country B 20 AND 60

Which of the following statements about the case above is CORRECT?

A. Country A has an absolute advantage and a comparative advantage in producing watches.

B. Country A has an absolute advantage in producing bread, while Country B has an absolute advantage
in producing watches.
C. Only the total output of bread would increase after complete specialisation.
D. If the terms of trade is 1 unit of watches = 2.5 units of bread, there would be no trade between the two
countries.

43. The diagram below shows the demand-supply diagram of good X in a small open economy.

Unit price

PW
D2
D1
0 Quantity

Initially, the economy imported good X at the world price (Pw). Later, it imposed a tariff (t) on good X. At the
same time, demand for good X increases. Which of the following statements is INCORRECT?

A. The domestic price of good X will be equal to PW + t..

B. The import volume of good X will decreases.
C. The quantity transacted of good X will decreases.
D. The quantity supplied of domestic producers of good X will increase.

44. Study the following information about the balance of payment account of Country A.
$million
Goods 50
Services -20
Current Transfers 2
Factor Income 20
Capital and Financial Account(excluding change in reserve assets) -20
Change in reserve assets X

Which of the following descriptions about Country A is correct?

A. Country A has a current account deficit.
B. Country A has a visible trade deficit.
C. Country A has a balance of payments deficit.
D. Country A’s reserve assets increases by $32 million.

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45. The table below shows the Renminbi time deposit interest rate of HSBC on September 26, 2019.

Tenor Renminbi ¥10,000 to ¥499,999 Renminbi ¥500,000 or above

12 months 0.55% 0.60%

On the same day, Mr Cheung bought a total of RMB¥100,000 at an exchange rate of HK$100 to RMB¥90.247
and deposited the sum in HSBC as time deposits. Suppose he withdraws the money a year later and exchanges
the sum for Hong Kong dollars at an exchange rate of HK$100 to RMB¥92.258. From the transaction,
Mr Cheung will _______________.

A. gain about HK$550.

B. gain about HK$2,518.
C. lose about HK$1,764.
D. lose about HK$1,819.

END OF PAPER

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