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NSS EXPLORING ECONOMICS

HONG KONG DIPLOMA OF SECONDARY EDUCATION EXAMINATION

MOCK PAPER (2013 February)

ECONOMICS PAPER 1
Time allowed: 1 hour

INSTRUCTIONS

1. 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.

2. All questions carry equal marks.

3. ANSWER ALL QUESTIONS.

4. You should mark only ONE answer for each question. If you mark more than one answer,
you will receive NO MARKS for that question.

5. No marks will be deducted for wrong answers.

NSS Exploring Economics 1 © Pearson Education Asia Limited 2013


Mock Paper (2013 February) (Paper 1)
There are 40 questions in this paper. Choose the BEST answer for each question.

1. Which of the following statements are normative statements?


(1) The Hong Kong government should ban non-local investors from buying property
in order to curb property speculation.
(2) The new 15% stamp duty for all non-local buyers will lead to an increase in
property prices.
(3) The new 15% stamp duty for all non-local buyers will lead to a decrease in the
quantity transacted of property.
(4) It is better for the government to provide more public housing than to impose the
new stamp duty.
A. (1) and (4) only
B. (2) and (3) only
C. (1), (2) and (4) only
D. (2), (3) and (4) only

2. There is a presidential election in the United Space. The following is John’s order of
preference for the candidates:

First preference: Mr Bar


Second preference: Mr Rom
Third preference: Mr X

Which of the following will increase John’s cost of electing Mr Bar?


A. There is a rumour that Mr X has bribed people to vote him.
B. Mr Bar performs very well at all presidential debates.
C. A survey shows that Mr Rom has a lower chance of winning the election.
D. John thinks that Mr Rom’s new foreign policy is better than the one proposed by Mr
Bar.

3. Which of the following is NOT a characteristic of a market economy?


A. Private property rights are well defined.
B. Production decisions are guided by price signals.
C. There is no problem of scarcity.
D. People who are willing and able to pay market prices can get the goods they want.

NSS Exploring Economics 2 © Pearson Education Asia Limited 2013


Mock Paper (2013 February) (Paper 1)
4. In a restaurant, different staff are responsible for different tasks such as serving customers,
cooking, and being a cashier. What are the advantages of this practice?
(1) Staff do not have to move around to perform different jobs.
(2) The restaurant can assign the most suitable staff for different jobs.
(3) Food prepared by the restaurant can be more standardised.
(4) Fewer cooking tools are needed.
A. (1) and (4) only
B. (2) and (4) only
C. (1), (2) and (3) only
D. (1), (2) and (4) only

5. Which of the following statements about ‘capital’ is correct?


A. Some types of capital like timber can be regarded as land because it is extracted from
nature.
B. Capital formation involves zero cost.
C. The return from capital is called rent.
D. An increase in capital implies some present consumption has been forgone.

6. Which of the following would increase the geographical mobility of labour?


A. A country becomes politically unstable.
B. Workers are prohibited from working overseas.
C. It becomes easier to acquire the licences that some professions require.
D. Many roads are destroyed by an earthquake.

7. The law of diminishing marginal returns


A. applies when all factors can vary with the output level.
B. sets in when the average cost is increasing.
C. tells us that marginal product increases at first, and decreases after.
D. may set in when the total product is increasing.

8. Economies of scale could be


A. a source of monopoly power.
B. attained by expansion.
C. a result of bulk purchase discounts.
D. All of the above

NSS Exploring Economics 3 © Pearson Education Asia Limited 2013


Mock Paper (2013 February) (Paper 1)
9. AIA Group, a pan-Asia insurer, bought ING’s Malaysian insurance unit. This is
____________, which has a possible advantage of ___________________.
A. horizontal expansion; increasing AIA’s market share
B. vertical expansion; securing market outlets for AIA’s outputs
C. lateral expansion; more efficient use of both companies’ resources
D. conglomerate expansion; reducing AIA’s risk through product diversification

10. Which of the following is the closest example of oligopoly in Hong Kong?
A. Fashion retailing market
B. Water supply market
C. Supermarket industry
D. Stock market

11. More people are using glass noodles (粉絲) to replace shark fins at banquets. On the other

hand, the number of sharks has been decreasing sharply. Which of the following diagrams
can best represent the effect of the above situations?

A. Shark fin B. Shark fin


Price ($) Price ($)
S2
S2 S1
S1

D1
D
D2
0 Quantity 0 Quantity

C. Glass noodles D. Shark bone


Price ($) Price ($)
S2
S1 S1
S2

D1
D
D2
0 Quantity 0 Quantity

NSS Exploring Economics 4 © Pearson Education Asia Limited 2013


Mock Paper (2013 February) (Paper 1)
NSS Exploring Economics 5 © Pearson Education Asia Limited 2013
Mock Paper (2013 February) (Paper 1)
12. In Country A, pork is a normal good. The price of pork has been increasing. It has been
observed that people are purchasing less pork. Which of the following can account for
this?
A. Some fish have been found to be toxic. Also, the government of Country A has
imposed a price ceiling on pork.
B. More people in Country A became vegetarians. Also, some countries have prohibited
imports of pork from Country A for political reasons.
C. Fewer people in Country A are willing to work on pig farms. Also, several pig farms
in Country A have been forced by the government to close because they created a
disturbance in their neighbourhoods.
D. There have been technological advances in Country A’s pig-farming industry. Also,
the government has imposed an income tax on Country A’s residents.

13. If the price of Newspaper X increases from $5 to $6, daily sales of Newspaper X decrease
from 2,000 copies to 1,000 copies. Which of the following can best explain the above
phenomenon?
A. Many free newspapers are available in the region.
B. People in the region spend little of their income on Newspaper X.
C. Newspaper X has lots of interesting, exclusive news items.
D. Readers of Newspaper X get used to reading it every day.

14. Which of the following would increase the price elasticity of supply of Good X?
A. Workers need a licence before working in the industry that produces Good X.
B. Legislation on maximum working hours takes effect.
C. Producers of Good X purchase new machines to increase their production capacity.
D. Producers of Good X have reached their production limits.

NSS Exploring Economics 6 © Pearson Education Asia Limited 2013


Mock Paper (2013 February) (Paper 1)
15. Refer to the following information about Good Y.

Price ($) Quantity demanded (units) Quantity supplied (units)


40 140 40
45 130 50
50 120 60
55 110 70
60 100 80
65 90 90
70 80 100
75 70 110
80 60 120

If a unit subsidy of $20 is provided to the producers of Good Y,


A. the total revenue that producers receive is $6,050.
B. consumers’ share of the subsidy is $2,200.
C. the quantity transacted of Good Y will increase by 20 units.
D. the market price of Good Y will increase by $10.

16. Which of the following would most likely increase the producer surplus of soft drink
producers?
A. More people decide to reduce their consumption of soft drinks in order to stay
healthy.
B. The government regulates the maximum quantity of soft drinks to be produced.
C. The prices of coffee and tea decrease.
D. The price of tin cans for soft drinks decreases greatly.

17. Which of the following is a function of price?


A. Encouraging innovation
B. Distributing goods and services among consumers
C. Reducing income inequality
D. Eliminating scarcity

18. Which of the following examples can best illustrate externalities?


A. A restaurant employs mentally disabled workers to save costs.
B. A property developer builds two buildings that block each other’s view.
C. A person drives on an uncrowded road.
D. Visitors take seashells from a beach and dump their rubbish on the beach.

NSS Exploring Economics 7 © Pearson Education Asia Limited 2013


Mock Paper (2013 February) (Paper 1)
19. The following table shows the Gini coefficient of several countries in Year 20XX.

Country Gini coefficient


A 0.398
B 0.250
C 0.682
D 0.398

According to the above table, which of the following is correct?


A. Country A’s people enjoy the same living standards as Country D’s.
B. Country B’s income distribution is the most even among the four countries.
C. Country C’s people enjoy the highest living standard among the four countries.
D. The income inequality problem is more serious in Country D than Country A if
Country D has a younger workforce.

20. Which of the following can reduce income inequality by equalising opportunities?
A. Providing 12-year free education
B. Providing unemployment benefits
C. Removing the competition policy
D. Removing the minimum wage policy

21. Refer to the following production chain.

TV Sets China’s
Electronic Electronic ($8,000) households
circuits circuits
US ($1,000) China’s ($3,000) China’s
exporter importer factory

TV Sets
TV Sets ($15,000)
China’s US
($9,000)
exporter importer

The contribution of the above production chain to China’s GDP is _____________.


A. $16,000
B. $17,000
C. $22,000
D. $23,000

NSS Exploring Economics 8 © Pearson Education Asia Limited 2013


Mock Paper (2013 February) (Paper 1)
22. Which of the following is a possible reason why per capita nominal GDP can
overestimate the general living standard of a country?
A. Deflation exists in that country.
B. The country’s population has increased.
C. The value of unpaid housework is not included.
D. The country has a large trade surplus.

23. Country A’s per capita nominal GDP, per capita real GDP, and population increase by 5%,
3%, and 7%, respectively. We can conclude that the real GDP ____________, while the
price level _____________.
A. increases; increases
B. increases; decreases
C. decreases; increases
D. decreases; decreases

24. Refer to the following data for Country X.

Total population 2,000,000


Population aged below 15 360,000
Unemployed population 80,000
Underemployed population 120,000

What is the unemployment rate in Country X?


A. 4.00%
B. 4.88%
C. 10.00%
D. 12.20%

25. Which of the following would a producer most likely do now if he thinks inflation will
occur?

A. Borrow money from a bank with floating interest rates (浮動利率)

B. Buy bonds with fixed interest payments

C. Buy equipment with fixed monthly instalments (分期付款)

D. Sell his products earlier to avoid accumulating inventory

NSS Exploring Economics 9 © Pearson Education Asia Limited 2013


Mock Paper (2013 February) (Paper 1)
26. Which of the following can explain why a country’s short run aggregate supply curve is
upward sloping?
(1) The government has been printing money non-stop.
(2) Prices that factories pay for raw materials are often fixed by supply contracts.
(3) The country experiences a large scale strike in the short run.
A. (1) only
B. (2) only
C. (1) and (2) only
D. (2) and (3) only

27. Country A has had an increase in aggregate output and a decrease in the price level in the
short run. Which of the following can account for this?
A. The required reserve ratio has been lowered.
B. The income tax rate has been increased.
C. Oil prices have increased.
D. There has been technological advances.

28. Both real GDP growth rates and price levels have been increasing. The country is most
likely in the ______________ phase of the business cycle.
A. trough
B. recovery
C. peak
D. recession

29. Massive tax evasion has taken place in Greece for several years because of its poor tax
collection system. The government needs to put great effort into collecting taxes. Which
of the following principles of taxation is the Greek tax system most likely violating?
A. Equity principle
B. Certainty principle
C. Convenience principle
D. Economy principle

30. Which of the following about the linked exchange rate system in Hong Kong is correct?
A. The market exchange rate is fixed at US$1 to HK$7.8.
B. All licensed banks can buy Certificates of Indebtedness from the Exchange Fund.
C. Hong Kong dollars are fully backed by US dollars.
D. Market exchange rates for the Hong Kong dollar against currencies other than the US
dollar are fixed.

NSS Exploring Economics 10 © Pearson Education Asia Limited 2013


Mock Paper (2013 February) (Paper 1)
31. The following table shows a banking system’s balance sheet.

Assets ($) Liabilities ($)


Reserves 400 Deposits 1,000
Loans 600

The banking system has an excess reserve of $200. Suppose a client withdraws $150 from
the banking system and remits the money overseas, after which the banking system loans
out all its excess reserves. If the public does not hold any cash, money supply will
___________.
A. increase by $50
B. increase by $250
C. decrease by $50
D. decrease by $250

32. Increasing taxes and government expenditure by the same amount is __________,
because_______________.
A. expansionary; government expenditure has a greater effect on GDP than private
consumption
B. expansionary; people save some of their income
C. contractionary; both measures will discourage people from working
D. contractionary; the contractionary effect of increasing taxes is greater than the
expansionary effect of increasing government expenditure

33. Which of the following problems will NOT exist in a barter economy?
A. Difficult to find a trading partner
B. Difficult to set a uniform exchange ratio between two types of goods
C. Inflation
D. High transport costs for transactions

34. Ms Wong withdraws HK$500,000 from her deposit account at a restricted licence bank.
She converts half of the amount into Euros and remits it overseas, and keeps the
remaining amount at home.
What is the immediate effect of the above actions?
A. M1 remains unchanged.
B. M2 increases by $250,000.
C. M3 remains unchanged.
D. M3 decreases by $500,000.

NSS Exploring Economics 11 © Pearson Education Asia Limited 2013


Mock Paper (2013 February) (Paper 1)
35. Which of the following will raise the nominal interest rate?
(1) Workers receive monthly payments instead of weekly payments.
(2) The central bank lowers the discount rate.
(3) The government raises the required reserve ratio.
(4) Selling stock in the stock market becomes easier.
A. (1) and (3) only
B. (1) and (4) only
C. (2) and (3) only
D. (2) and (4) only

36. Which of the following statements about the quantity theory of money is correct?
A. It assumes that the price level is constant in the long run.
B. It is an identity.
C. It predicts that money is neutral in the long run.
D. It assumes that real GDP is constant in the short run.

37. The following table shows the amounts of Good X or Good Y that Country A and Country
B can produce with one unit of resources.

Good X (units) Good Y (units)


Country A 5 or 15
Country B 10 or 20

Which of the following is correct?


(1) Country A has an absolute advantage in producing Good X.
(2) Country A has an absolute advantage in producing Good Y.
(3) Country B has a comparative advantage in producing Good X.
(4) Country B has a comparative advantage in producing Good Y.
A. (3) only
B. (4) only
C. (1) and (3) only
D. (2) and (4) only

38. Which of the following CANNOT be an effect of imposing a quota on imported goods?
A. The consumption level increases.
B. The quality of imported goods improves.
C. Domestic production of goods increases.
D. The quantity of imported goods decreases

NSS Exploring Economics 12 © Pearson Education Asia Limited 2013


Mock Paper (2013 February) (Paper 1)
39. If the US dollar depreciates against the Euro,
A. more Hong Kong people will take a trip to Europe.
B. Germany’s trade balance will improve.
C. the quality of food imported from Europe to Hong Kong will improve.
D. None of the above

40. Which of the following will be recorded in the current transfers account?
A. Service fees that a local broker receives from a foreigner for a stock transaction
B. The value of imported food
C. The value of local stocks that foreigners purchase
D. Donations to a foreign country to aid the victims of a natural disaster

END OF PAPER

NSS Exploring Economics 13 © Pearson Education Asia Limited 2013


Mock Paper (2013 February) (Paper 1)