2020 Mock Exam

Form 6
Econ

Paper 1

La Salle College
Form 6 Mock Examination 2019-2020

Economics Paper 1

8:15 a.m. – 9:15 a.m. (1 hour)

11 Feb 2020

Instructions

1. Read carefully the instructions on the Multiple Choice Answer Sheet. When examination begins, you
should enter your name, subject, today’s date, your level and your class in the respective boxes on
the answer sheet. Enter your 3-digit exam number in the boxes named “class no.”. Repeat the
information for the computer by shading the corresponding boxes under each digit with an HB pencil.

2. When told to open this book, you should check that all the questions are there. Look for the words ‘END
OF PAPER 1’ after the last question.

3. All questions carry equal marks.

4. ANSWER ALL QUESTIONS. You should select the best option and shade the appropriate box with an
HB pencil on the Answer Sheet.

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.

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

1. In the Policy Address, the Chief Executive 6. Refer to the diagram below which shows the supply
suggested providing a subsidy for students to take of and demand for rice in Hong Kong. The original
part in at least one mainland exchange programme equilibrium is at E.
in the primary and secondary stages. This
suggestion is related to the ________question(s) in
Economics.
A. ‘what to produce’
B. ‘for whom to produce’
C. ‘what to produce’ and ‘for whom to produce’
D. ‘what to produce’ and ‘how to produce’

2. Which of the following about economic goods are

correct? Suppose the price of noodles increases and the cost
(1) They may not have a market price. of transporting the rice from Mainland to Hong
(2) Their marginal benefits are positive. Kong drops. The new equilibrium point will be
(3) There is a cost for producing them. at________.
A. (1) and (2) only A. E1
B. (1) and (3) only B. E2
C. (2) and (3) only C. E3
D. (1), (2) and (3) D. E4

3. The Festival Walk offers visitors free wireless 7. Refer to the following demand and supply schedule
Internet access at most seating and public areas. The for good X.
wireless network in the shopping arcade is NOT Unit price ($) Quantity Quantity
__________ because ____________. supplied demanded
A. a public good…….it is the property of the (units) (units)
Festival Walk 10 25 45
B. a public good……..there is no way of 11 30 40
preventing people from using it 12 35 35
C. a private good…….everyone is allowed to 13 40 30
access the network 14 45 25
D. a private good……it can serve different people 15 50 20
at the same time
After the government imposes a per-unit tax on
4. Suppose the government provided subsidies for good X, the market price of good X increases by $2.
universities to offer more degree programmes for Which of the following statements is CORRECT?
secondary school graduates. It would result in A. The sellers’ revenue net of tax will be $350.
A. an increase in labour supply. B. The total tax revenue will be $50.
B. a reduction in the geographical mobility of C. The buyers’ total expenditure on good X will
labour. increase by $30.
C. an increase in average labour productivity. D. The tax burdens borne by the buyers and the
D. a reduction in the occupational mobility of sellers are equal.
labour.
8. Suppose an effective quota is imposed on imported
5. Which of the following would cause the price workers. Which of the following will occur?
elasticity of demand for printed textbooks to (1) The number of imported workers employed
increase? will fall.
A. a great increase in household income (2) The wage rate of local workers will rise.
B. a drop in the price of printed textbooks (3) The total wage earnings of imported workers
C. a decrease in the printing costs of printed will rise.
textbooks A. (1) and (2) only
D. the availability of electronic textbooks B. (1) and (3) only
C. (2) and (3) only
D. (1), (2) and (3)

Mock Exam 2017-2018 – Econ 1 1

9. Which of the following will result in a decrease in 14. Which of the following policy would cause a
Hong Kong’s labour supply? disincentive effect on work?
A. A relaxation on the control of the importation of A. raising the profits tax rate
foreign workers B. raising the sales tax rate
B. An increase in the number of statutory holidays C. lowering unemployment benefits
C. A rise in the public spending on infrastructure D. raising the salaries tax rate
D. A reduction in the minimum wage for foreign
domestic helpers 15. The government is planning to lower the effective
price ceiling on good X. After this,
10. Study the information for Firm X and Firm Y below: A. consumer surplus will increase.
B. producer surplus will decrease.
Firm A Firm B C. quantity transacted of good X will increase.
Selling Yes No D. deadweight loss will decrease.
shares to the
public 16. In which of the following pairs does the demand for
Liability The owners The owners the first good create a derived demand for the
bear limited bear unlimited second one?
liabilities. liabilities. A. iced lemon tea and coffee
B. iced lemon tea and lemon
According to the information above, Firm A is a C. drinking straws and iced lemon tea
_______, and Firm B is a _________. D. plastic cups and iced lemon tea
A. partnership……private limited company
B. private limited company……...partnership 17. Some farmers complained that a coal mine polluted
C. public limited company………partnership the river near their farms and they could not use the
D. public limited company……private limited water for cultivation. Which of the following is
company CORRECT?
A. There is an under-production of coal.
11. When more firms of the same industry are located B. The owner of the coal mine should compensate
in a region, average production cost_______. This these farmers.
phenomenon can be explained by_________. C. The government should ban the mining activity.
A. falls……….internal economies of scale D. None of the above.
B. rises……….the law of diminishing marginal
returns 18. Which of the following help(s) equalise outcomes?
C. falls………..external economies of scale (1) increasing the first registration tax on luxury
D. rises……….internal diseconomies of scale cars
(2) providing health care vouchers for low-
12. A monopolist income households
A. may suffer loss. (3) providing education allowances for senior
B. faces no competition as it is the only seller in civil servants
the market. A. (1) only
C. faces a perfectly inelastic demand curve. B. (2) only
D. possesses perfect market information. C. (1) and (2) only
D. (1), (2) and (3)
13. Refer to the following table showing the production
costs of a price taker. 19. If both the post-tax income of all households and
Output (units) Total cost ($) the post-tax Gini coefficient increase, this implies
10 100 that
11 108 A. all people enjoy a higher living standard.
12 118 B. the post-tax income of high-income households
13 130 increases at a greater extent than that of low-
14 144 income households.
C. the salary tax changes from a proportional tax
Suppose the profit-maximising output of the firm to a regressive tax.
is 12 units. If the fixed cost decreases by $2, the D. the economy becomes more efficient.
price of the good and the output will be_______.
A. $8………11 units
B. $10……..11 units
C. $10……..12 units
D. $12……..12 units

Mock Exam 2019-2020 – Econ 1 2

20. 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 tend to aim at achieving
efficiency instead of equity.
D. When there is a trade-off between equity and
efficiency, efficiency should be a priority.
21. Which of the following is INCONSISTENT
with the law of demand?
A. Tourists from other countries tend to order more
expensive dishes than local customers in
restaurants.
B. People tend to order more expensive wines in
more high-class restaurants.
C. If the service charge that applied to all dishes
increased from 10% to 15%, customers would
tend to order more expensive dishes.
D. People tend to order more expensive dishes in
restaurants when there is long queuing time.
22. Which of the following are normative statements?
(1) Stop using plastic drinking straws will save
plenty of marine life.
(2) It is unpleasant to drink cold drinks without
using plastic drinking straws.
(3) We should stop using plastic drinking straws
to save the environment.
A. (1) and (2) only
B. (1) and (3) only
C. (2) and (3) only
D. (1), (2) and (3)
25. Suppose the nominal interest rate is 2% and the
expected inflation rate is 5%. If the actual inflation
rate turns out to be 8%, the cost of holding cash and
the real rate of return on holding cash are
__________ and _________ respectively.
A. 2%........-3%
B. 2%........-8%
C. 5%........-3%
D. 5%........-8%
26. Suppose the unemployed population in an economy
is 180,000 and the unemployment rate is 9%. The
employed population in the economy
is_________.
A. 1,620,000
B. 1,800,000
C. 1,820,000
D. 2,000,000
27. If the ratio of public expenditure to GDP decreases,
this implies that
A. the budget deficit has improved.
B. the government has reduced its expenditure.
C. the amount of resources controlled by the
public sector decreases.
D. the average living standard of households has
increased.
28. To narrow an inflationary gap, which of the
following policies can be adopted?
A. providing domestic producers more production
subsidies
B. the central bank buying bonds in the market
C. printing more money
D. cutting tax allowance for salaries tax

23. Country A has a higher per capita real GDP but a 29. Study the following table and answer question 29.
lower average living standard than Country B.
Which of the following is a possible reason for this? GDP components $ billion
(1) The inflation rate of Country A is higher. Private consumption expenditure 200
(2) The working hours of people in Country B are Gross domestic fixed capital formation 68
shorter. Change in inventories -3
(3) The population size of Country B is smaller. Government consumption expenditure 60
(4) The environmental pollution in Country A is Total exports of goods 230
more serious. Total imports of goods 330
Total exports of services 270
A. (1), (2) and (3) only
Total imports of services 100
B. (1), (2) and (4) only
Net factor income from abroad 10
C. (2), (3) and (3) only
Indirect taxes 25
D. All of the above Subsidies 20

24. Which of the following statements about inflation GDP at factor cost is $________billion.
are CORRECT? A. 390
(1) Inflation refers to a persistent increase in the B. 395
prices of goods and services in the economy. C. 400
(2) Real assets are preferred to monetary assets
D. 415
when there is inflation.
(3) Inflation does not exist in a barter economy.
A. (1) and (2) only B. (1) and (3) only
C. (2) and (3) only D. (1), (2) and (3)
Mock Exam 2019-2020 – Econ 1 3
30. Study the following balance sheet of a banking 35. Which of the following would cause the aggregate
system. The required reserve ratio is 20%. output and the price level to change in the opposite
Assets ($million) Liabilities ($million) direction in the short run?
Reserves 400 Deposits 1,600 A. an increase in the people’s desire to save and to
Loans 1,200 invest
Suppose the public withdraw $100 million from the B. a fall in air passenger departure tax and a rise
banking system and hold it is as cash. Which of the in stamp duties
following is CORRECT? C. an increase in oil prices and a reduction in the
A. The actual reserve ratio will increase. quota for imported workers
B. The actual banking multiplier will increase. D. an improvement in production technology and
C. The money supply will decrease. a fall in imports
D. The monetary base will increase.
36. Which of the following will increase money
31. Coin is better than shell to serve as a unit of account demand?
in terms of________. A. A fall in real GDP
A. divisibility B. A stock market crash
B. durability C. A rise in the nominal interest rate
C. homogeneity D. A more widespread use of electronic payment
D. portability systems

32. Tommy sold a negotiable certificate of deposit 37. Suppose the unemployment rate is falling, the
issued by a licensed bank to Jackie and received a inflation rate and total retail sales value is
cheque of $100,000. Tommy deposited the cheque increasing. Which phase of the business cycle is the
into his savings account. The immediate effect of economy in?
the above transactions is: A. Recession
A. Both M1 and M2 increase by $100,000. B. Trough
B. M1 decreases by $100,000 and M2 remains C. Recovery
unchanged. D. Peak
C. M3 decreases by $$100,000 and M2 remains
unchanged. 38. According to the equation of exchange, which of
D. Both M2 and M3 increase by $100,000. the following is possible when money supply and
the general price level grow at the same rate?
33. Which of the following is NOT a function of the A. The growth rate of the velocity of circulation of
Hong Kong Monetary Authority? money is higher than that of the real output.
A. to maintain the stability of the linked B. The velocity of circulation of money and the
exchange rate of the Hong Kong and U.S. real output fall at the same rate.
dollar C. The velocity of circulation of money remains
B. to determine the deposit interest rate of unchanged while the real output falls.
commercial banks D. The velocity of circulation remains unchanged
C. to maintain Hong Kong’s status as an while the real output grows at the same rate as
international financial centre the general price level.
D. to promote the stability of the banking system
39. Refer to the table below.
34. Which of the following may lead to a decrease in Income ($) Tax payment ($)
the money supply of an economy? Tax system A Tax system B
(1) an open market sale of bonds by the central 1,000 80 60
bank 2,000 160 160
(2) a decrease in the discount rate 3,000 240 300
(3) banks recalling loans from the public
A. (1) and (2) only When the tax system changes from tax system A to tax
B. (1) and (3) only system B,
C. (2) and (3) only A. more people will fall into the tax net.
D. (1), (2) and (3) B. people’s working incentive will increase.
C. the government’s financial status will improve.
D. the income gap between the rich and the poor
will be reduced.

Mock Exam 2019-2020 – Econ 1 4

40. Which of the following is an advantage of imposing
a quota over imposing a per-unit tariff on imports
for a small open economy?
A. The quality of imported goods can be higher.
B. The price of imported goods can be lower for
local consumers.
C. The government can have better control over
the quantity of imports.
D. The government can receive more revenue
from tariff.
44. Ozil is a Hong Kong resident who often travels to
the Mainland. Which of the following events will
not affect the balance of payments of Hong Kong?
A. Ozil buys souvenirs in the Mainland.
B. Ozil rents a residential apartment in the
Mainland.
C. Ozil remits a sum of money through a bank in
Hong Kong to his relatives in the Mainland.
D. Ozil buys daily necessities in Hong Kong as
gifts to his relatives in the Mainland.

41. If there is an increase in the number of tourists 45. The following table shows the output per unit of
travelling to Hong Kong, Hong Kong’s ________ resources in Country A and Country B.
will increase. Watches (units) Dictionaries(units)
(1) domestic exports of goods Country A 12 OR 30
(2) exports of services Country B 6 OR 18
(3) invisible trade surplus
A. (1) only If the two countries engage in trade, the watch
B. (2) only exporting country exports 5 units of watches in
C. (1) and (3) only exchange for 13 units of dictionaries. The gain from
D. (2) and (3) only trade of the watch exporting country from exporting
5 units of watches will be ______ units of
42. When there is stagflation (coexistence of inflation dictionaries.
and unemployment) in an economy, which of the A. 0.1
following measures can the government adopt to B. 0.3
stabilize the price level and aggregate output in C. 0.5
the short run? D. 0.7
(1) Expansionary monetary policy
(2) Contractionary monetary policy
(3) Devaluation of the domestic currency
A. (3) only
B. (1) and (3) only
C. (2) and (3) only
D. None of the above

43. Under the linked exchange rate system in Hong

Kong, if the US dollar depreciates against other
foreign currencies,
A. the volume of Hong Kong toys exported to
Canada will increase.
B. the volume of Japanese cars imported from
Hong Kong will increase.
C. the number of American tourists coming to
Hong Kong will decrease.
D. the number of Japanese tourists coming to
Hong Kong will decrease.

End of Paper I

Mock Exam 2019-2020 – Econ 1 5

Paper 1 (Total 45 questions)

1 C 6 D 11 C 16 B 21 C 26 C 31 C 36 B 41 B
2 D 7 D 12 A 17 D 22 C 27 C 32 B 37 C 42 D
3 D 8 A 13 C 18 C 23 B 28 D 33 B 38 B 43 A
4 C 9 B 14 D 19 B 24 C 29 A 34 B 39 D 44 D
5 D 10 C 15 B 20 B 25 B 30 B 35 C 40 C 45 C

Mock Exam 2019-2020 – Econ 1 6