PAPER 1 The Hong Kong Chinese Christian Churches Union

Logos Academy

2021 – 2022

UNIFORM TEST

Level: MS4
Subject / Paper: Economics Paper 1
Date: 26/11/2021
Duration: 8:30 a.m. – 9:15 a.m. (45 minutes)
Total marks: 35 marks
Total no. of pages: 13 (Including the cover page)

INSTRUCTIONS

1. Read carefully the instructions on the Answer Sheet. Please mark your class and
class number on the Answer Sheet. No extra time will be given for marking your
class and class number on the Answer Sheet after the “Time is up” announcement.

2. When you are 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 marks 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.

Name: ____________________

Class: _____________ ( )

Block: ____________________

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2021 – 2022 – MS4 – Uniform Test – DSE Economics – Paper 1 Page 2 of 14
There are 35 questions in this paper. Choose the BEST answer for each question.

1. Maurice has just bought Super Mario Odyssey, a new Nintendo Switch game. He spends 2
hours playing with Super Mario Odyssey every day. Which of the following is / are included in
the cost of playing with Super Mario Odyssey?

(1) The price of Super Mario Odyssey

(2) The possible decline in his academic performance due to a decrease in time spent on his
studies
(3) The possible harmful effects on his eyesight

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

2. Interest could exist WITHOUT the existence of ________.

(1) scarcity
(2) money
(3) a banking system

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 is / are (a) positive statement(s)?

(1) The imposition of a minimum wage will widen the income gap.
(2) Labour unions are important for workers in bargaining for better pay.
(3) It is unfair to low-skilled workers if a minimum wage is imposed in Hong Kong.
(4) More unskilled workers will lose their jobs if a minimum wage is imposed in Hong Kong.

A. (1) and (4) only

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

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4. From the viewpoint of the investors, which of the following is an advantage of buying
debentures over shares?

A. The risk of holding debentures is lower.

B. The return from holding debentures is higher.
C. Debenture holders can have a better control of the firm that issues the debentures.
D. Debenture holders have higher priority in getting back the money invested when the firm
issuing the debentures goes bankrupt.

5. Which of the following would increase the labour supply in Hong Kong?

A. A decrease in birth rate in Hong Kong.

B. A lower average salaries tax rate in Hong Kong.
C. The number of public holidays in Hong Kong increases.
D. A decrease in the retirement age in Hong Kong.

6. Agnès b first focused on designing clothes. Later, the firm launched a skincare and cosmetics
line. It now operates cafés as well. It is an example of _____ expansion.

A. backward
B. forward
C. horizontal
D. conglomerate

7. Hong Kong Tramways Limited is the only tram service provider in Hong Kong. Which of the
following statements about Hong Kong Tramways Limited is correct?

A. It must have a positive profit, as it is the sole supplier in the market.

B. It can increase its revenue by raising its price.
C. It does not engage in non-price competition.
D. It still needs to face competition from other transportation systems.

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

A. The unemployment rate increases after the introduction of a minimum wage.

B. A larger quantity of expensive fishes is sold in a faraway market than a market near the
farm.
C. More people take shorter flights after a fixed airport construction surcharge is imposed on
all air tickets.
D. When the price of fish decreases, people buy less meat.

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9. After a forest fire in a major orange exporting country, the quantity transacted of oranges
decreases by 40%, and the price of oranges increases by 20%. We can conclude that ________.

A. the demand for oranges is elastic

B. the demand for oranges is inelastic
C. the supply of oranges is elastic
D. the supply of oranges is inelastic

10. Holding other factors constant, under which of the following situations will an increase in the
price of Good X lead to an increase in the total revenue of Good Y?

A. Good X and Good Y are in competitive supply.

B. Good X and Good Y are in joint supply.
C. Good Y is a complement for Good X.
D. Good Y is a substitute for Good X.

Refer to the following supply and demand schedules for Good X.

Price ($) Quantity demanded Quantity supplied

(units) (units)
9 68 50
10 65 52
11 63 55
12 60 60
13 57 63
14 55 65

11. Suppose the government imposes a per-unit tax of $3 on Good X. Which of the following
statements is/ are correct?

(1) Within the range of the original and the new equilibrium prices, the demand for Good X is
elastic.
(2) The tax revenue of the government is $180.
(3) The consumers bear a greater tax burden than the buyers.

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

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12. The following table shows the supply and demand schedules of good Y.

Unit price ($) 10 9 8 7 6 5

Quantity supplied (units) 90 85 80 75 70 65
Quantity demanded (units) 60 65 70 75 80 85

If the government imposes a quota at 70 units on good Y, the total revenue will ________.

A. decrease by $35
B. decrease by $120
C. increase by $35
D. increase by $120

13. The following table shows the production data of a price-taking firm operating in short run.
Output (units) 4 5 6 7 8
Average variable cost ($) 6 5 5 6 7

Suppose the market price is $14. Which of the following is / are possible value(s) of the
maximum profit?

(1) $51
(2) $53
(3) $56

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

14. If the fixed cost of a profit-maximising firm decreases, its output will ________ and its producer
surplus will ________.

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

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15. The allocative function of market price differs from the rationing function in that the former
________ while the latter does not.

(1) transmits information about consumers’ preference

(2) would result in a change in the use of resources in production
(3) determines the winners and losers in competition

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

16. On Island H, the government decides to limit the maximum rent for private housing. The
maximum rent has been set at P1 on the diagram below.
$

L S
A
P1 Maximum rent
M

B
D
U
0 Quantity of rented private housing

Which of the following is correct?

(1) The deadweight loss is equal to Area AMB.

(2) The producer surplus is equal to Area P1ABU.
(3) The total social surplus is equal to Area LMU.

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

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17. The following table is about Hong Kong’s Gini coefficients.

Year 2006 2011 2016

Gini coefficient 0.533 0.537 0.539

Which of the following is a possible reason for the trend shown in the above table?

A. The ownership of capital has become more uneven.

B. The government has raised the amount of Comprehensive Social Security Assistance (綜合
社會保障援助).
C. The government has provided more vocational training.
D. The government has raised the standard rate of the salaries tax.

18. The following table shows the gross domestic product (GDP) data of an economy.

GDP components Million ($)

GNI 750
Private consumption expenditure 180
Government consumption expenditure 40
Gross domestic fixed capital formation 80
Depreciation 45
Changes in inventories -20
Net exports of goods and services 110
Imports of goods and services 50

What is the value of net factor income from abroad in this economy?

A. $295 million
B. $315 million
C. $360 million
D. $440 million

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19. Hong Kong Disneyland Resort had a sales revenue of HK$6 billion in 2018, while its
contribution to Hong Kong’s GDP was HK$7 billion in the same year. Which of the following
are possible explanations to the above situation?

(1) The value of some construction work done in 2018 was not reflected in the sales revenue.
(2) There was an increase in the inventories of souvenirs by the end of 2018.
(3) Hong Kong Disneyland Resort imported some intermediate goods from other countries in
2018.

A. (1) and (2) only

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

20. Refer to the following table about an economy.

Growth rate
Period 1 Period 2
Nominal GDP + 1.3% + 0.1%
Price level + 0.7% + 0.2%
Population size – 1.2% + 0.4%

According to the information above, ________ in Period 2.

A. real GDP increases

B. per capita real GDP decreases
C. per capita nominal GDP increases
D. deflation occurs

21. Which of the following people will gain under unanticipated inflation?

A. A university graduate who pays a fixed amount of insurance payment every month
B. A housewife who keeps a lot of cash in a safe box at home
C. A creditor receiving interest income at a floating rate
D. A retiree receiving a fixed monthly pension

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22. Which of the following would be a possible explanation for a decrease in the unemployment
rate of an economy?

A. The percentage increase in the labour force is greater than that of the employed population.
B. The percentage increase in the employed population is greater than that of the labour force.
C. Both the employed population and the labour force decrease by the same amount.
D. Both the unemployed population and the labour force increase by the same amount.

23. Which of the following is NOT a characteristic of an economy operating at long run
equilibrium?

A. Aggregate output is always at the full employment level.

B. The change in the price level has no effect on aggregate output supplied.
C. All factor prices are flexible.
D. Nominal income is fixed.

24. The diagrams below show the relationship between tax payment and income of a certain tax.

Tax payment ($) Tax payment ($)

Taxable Taxable
0 0
income ($) income ($)
Old Tax System New Tax System

Which of the following statements is / are correct?

(1) The tax changes from a proportional tax to a progressive tax.

(2) The change in the tax system leads to a more uneven income distribution.
(3) The taxation principle of equality put forth by Adam Smith applies to this tax after the
change in the tax system.

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

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25. Country A is currently facing the problems of deflation and income inequality. Which of the
following measures can be adopted by the government to reduce the effect of the above
situation at the same time?

A. Lowering the general sales tax rate.

B. Increasing its spending on public health expenditure.
C. Reducing the personal allowance of the salaries tax.
D. Reducing the profit tax rate.

26. Jennifer has bought a camera priced at HK$12,000 which she will pay for by a 24-month
instalment plan.
Which of the following functions of money are performed in the above case?

(1) Store of value

(2) Unit of account
(3) Standard of deferred payments

A. (1) and (2) only

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

27. Which of the following is NOT a central bank function performed by the Hong Kong Monetary
Authority?

A. Determining the Hong Kong inter-bank offered rate

B. Being a lender of last resort
C. Issuing the $10 banknotes and coins
D. Maintaining the stability of the banking system

28. Jack is preparing to migrate to Country B. He withdraws $3,000,000 from his account with a
deposit-taking company. He gives $500,000 in cash to his parents and remits the remainder to
Country B. His parents keep $100,000 in cash and deposit $400,000 into their time deposit
account with a licensed bank.
What will the immediate changes in the money supply be?

A. Both M2 and M3 will decrease by $2,500,000.

B. M1 will increase by $500,000 and M3 will decrease by $2,500,000.
C. M1 will increase by $100,000 and M2 will remain unchanged.
D. M2 will increase by $500,000 and M3 will decrease by $2,500,000.
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29. The following is the balance sheet for the banking system of Country C.

Assets ($) Liabilities ($)

Reserves 1,400 Deposits 2,800
Loans 1,400

Suppose the banking system does not hold excess reserves. If Mr Chan withdraws $200 from a
bank, after the process of deposits contraction is completed, what is the maximum amount of
deposits in the banking system?

A. $1,400
B. $2,400
C. $2,600
D. $2,800

30. Which of the following will increase the asset demand for money?

(1) An increase in the nominal national income

(2) More people are concerned about the safety issue of using electronic payments.
(3) An increase in the volatility (波動性) of the stock market
(4) Abolition (廢除) of the stamp duty on the transaction of commercial buildings

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

31. According to the classical quantity theory of money, __________.

(1) money is neutral

(2) real GDP does not change
(3) an increase in price level will cause a proportional increase in money supply

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

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32. Country D uses 40% of the country’s resources to produce 10 units of Good A and 60% of
resources to produce 12 units of Good B. Suppose the international market price is that 1 unit of
Good A can be exchanged for 1.2 units of Good B. Which of the following is correct?

A. Country D has an absolute advantage in producing Good B.

B. Country D’s opportunity cost of producing 1 unit of Good B is 1.2 units of Good A.
C. To Country D, the gain from exporting a unit of good is 0.4 units of Good B.
D. If Country D has to pay a transaction cost of 0.5 units of Good B for each unit of export,
Country D will still trade with other countries.

33. Which of the following statements about the linked exchange rate system in Hong Kong is
correct?

A. The Hong Kong Government needs not hold a large amount of foreign exchange reserves.
B. The market exchange rate of US dollar against Hong Kong dollar is fixed at US$1 =
HK$7.8.
C. If Hong Kong dollar appreciates against South Korean Won, US dollar will also appreciate
against South Korean Won.
D. When the exchange rate of the US dollar against the Japanese Yen falls, more Japanese
tourists will visit Hong Kong.

34. Which of the following should be included in Hong Kong’s current account balance?

A. A Hong Kong investor buys shares issued by a listed company in UK.

B. The salary earned by a Hong Kong person who has worked in a restaurant in Japan for
three months.
C. The expenditure paid by a Japanese resident who buys an air ticket to Hong Kong from a
Japanese airline.
D. The money paid by a company in Hong Kong to takeover a company in Thailand.

35. When domestic currency appreciates against other major foreign currencies, the imported goods
and services will become relatively ________. Net exports will ________.

A. more expensive … decrease

B. cheaper … increase
C. more expensive … increase
D. cheaper … decrease

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 END OF PAPER

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