2024 HKDSE Economics Practice Paper | DSE Mock

Suppose there is a sharp increase in global crude oil prices. At the same time, the government of a small open economy reduces the profits tax rate. In the short run, the price level in this economy will \( \text{________} \) and the real output will \( \text{________} \).

Suppose the government imposes a per-unit tax of \(\\$10\) on the producers of a good. The tax burden will be shared equally between buyers and sellers if

Suppose an economy is experiencing a recessionary gap. The central bank decides to conduct open market operations by purchasing government bonds from the public. This policy will be MORE effective in increasing the real GDP if

A small open economy initially imports Good Y at the world price \(P_w\). The government then imposes an import tariff \(t\) per unit. Which of the following statements about the welfare effects is correct?

A cinema chain notices that when it reduces the price of movie tickets by 10%, its total revenue increases by 8%. Which of the following is correct?

A Hong Kong resident owns a flat in London and rents it out to a British citizen for £10,000 in 2023. In the same year, this Hong Kong resident also provides consulting services to a firm in Hong Kong and receives a salary of HK\(\\$50,000\). How do these transactions affect Hong Kong's Gross Domestic Product (GDP) and Gross National Income (GNI) in 2023?

If the production of a good generates a negative externality (external cost), and the market is left unregulated, which of the following statements is correct?

The following is the balance sheet of a banking system:\n\nAssets:\n- Reserves: \(\\$400\) million\n- Loans: \(\\$1,600\) million\n\nLiabilities:\n- Deposits: \(\\$2,000\) million\n\nSuppose the required reserve ratio is 20%. Banks do not hold excess reserves and there is no cash leakage. If the public deposits \(\\$100\) million of cash into the banking system, the maximum change in the money supply is \( \text{________} \).

The table below shows the annual income and tax paid by three individuals under a certain tax system:\n\n| Individual | Annual Income (\(\\$\)) | Tax Paid (\(\\$\)) |\n| :--- | :--- | :--- |\n| X | 10,000 | 500 |\n| Y | 30,000 | 2,100 |\n| Z | 50,000 | 4,500 |\n\nBased on the table, this tax system is \( \text{________} \) because the \( \text{________} \).

When a person compares the price of a smartphone (HK\(\\$8,000\)) with the price of a laptop (HK\(\\$12,000\)), which function of money is being performed?

Suppose there is an increase in international oil prices and at the same time, the government reduces the personal income tax rate. How will the price level and real output of the economy change in the short run?

When the government imposes an effective price ceiling on a good, which of the following must decrease?

(1) Quantity transacted
(2) Producer surplus
(3) Consumer surplus
(4) Total social surplus

The central bank of an economy lowers the required reserve ratio of commercial banks. Under which of the following conditions will this monetary policy be MOST effective in expanding aggregate demand?

If a small open economy imposes a tariff on an imported good, which of the following statements is correct?

Due to an increase in production costs, the price of a good increases by 10%, leading to a 15% drop in total revenue of the sellers. Which of the following is correct?

Which of the following items is/are included in the calculation of Hong Kong's Gross Domestic Product (GDP) for the current year?

(1) The salary of a British pilot employed by a Hong Kong-based airline flying international routes.
(2) The market value of a newly built residential building completed this year but remains unsold.
(3) The cash assistance distributed by the Hong Kong government to low-income families.

At the market equilibrium of a good that generates external benefits in consumption, which of the following is correct?

Suppose the balance sheet of the commercial banking system in an economy is as follows:

Reserves: $250 million
Deposits: $1,000 million

Assume that banks do not hold excess reserves and the public does not hold cash initially. If a depositor withdraws $50 million of cash from his bank account and keeps it as cash, what is the maximum change in the money supply after the banking system fully adjusts?

A city government charges a flat annual sanitation fee of $1,200 per household, regardless of household income or the amount of waste generated. This sanitation fee is ________ and violates ________.

Unlike a monopolistically competitive market, a key feature of an oligopolistic market is that ________.

The table below shows the maximum amounts of smart watches or smartphones Country A and Country B can produce with one unit of resources.

$$\begin{array}{|c|c|c|} \hline & \text{Smart watches} & \text{Smartphones} \\ \hline \text{Country A} & 10 & 5 \\ \hline \text{Country B} & 8 & 2 \\ \hline \end{array}$$

Which of the following could be the mutually beneficial terms of trade for Country A and Country B?

Suppose the government imposes an effective price ceiling on a good. If the supply of the good increases while the demand remains unchanged,

Suppose the required reserve ratio of a banking system is 10%. The public always deposits all their cash into banks, and banks do not hold excess reserves. If the central bank purchases $100 million of government bonds from the public, what will be the maximum possible change in the money supply?

When the price of Good X increases by 10%, the total revenue of Good X increases by 6%. Which of the following is correct?

Which of the following should be included in the calculation of Hong Kong's Gross Domestic Product (GDP) for the current year?

Suppose an economy is initially operating at its long-run equilibrium. If there is a major technological breakthrough in production, and at the same time the government increases the profits tax rate, how will the price level and real output change in the short run?

In a competitive market, a positive externality in consumption exists for a vaccine. Which of the following statements about the market equilibrium is correct?

Suppose the government replaces a progressive personal income tax system with a proportional income tax system. What will be the most likely effect on the Gini coefficient based on post-tax income, and the equity of the income distribution?

Suppose an economy is suffering from a deflationary (recessionary) gap. Which of the following combinations of policies is most effective in closing the gap?

Kelvin won a free ticket to an exclusive music festival tonight. The ticket is non-refundable and cannot be sold. Instead of attending the festival, Kelvin can choose to work a freelance shift that pays $1,200, or stay at home to study for his upcoming exam, which he values at $900. What is Kelvin's opportunity cost of attending the music festival tonight?

Suppose an economy is initially operating at its long-run equilibrium. If the government reduces the personal income tax rate, while at the same time the price of imported raw materials increases significantly, how will the price level and real output of the economy change in the short run?

The government imposes an effective price ceiling on a certain type of housing. Which of the following is/are the possible result(s) of this policy?
(1) A shortage of housing will emerge.
(2) The quality of housing may decline as landlords reduce maintenance expenditures.
(3) Non-price rationing, such as queuing, will occur.
(4) Deadweight loss will be created in the market.

Which of the following policy combinations is most effective in tackling a high unemployment rate during an economic downturn?

The table below shows the maximum amounts of toys or clothes that Country A and Country B can produce with the same amount of resources:

Country A: 40 units of toys OR 20 units of clothes
Country B: 30 units of toys OR 10 units of clothes

Which of the following statements is correct?

The demand for the services of a unique local ferry route is highly price-inelastic. If the ferry operator increases the ticket price, how will the quantity demanded and the total revenue of the operator change?

Which of the following items would be included in the calculation of Hong Kong's Gross Domestic Product (GDP) for the year 2023?

Suppose a market is initially at its efficient equilibrium without any externalities. If the government imposes an effective price floor on this good, which of the following statements is correct?

Assume that the legal reserve ratio of a banking system is 25% and banks do not hold excess reserves. There is no cash leakage. If a customer deposits $20,000 cash into Bank A, what is the maximum possible change in the total deposits of the banking system?

Which of the following scenarios best illustrates the function of money as a 'standard of deferred payment'?

Which of the following government policies is most likely to reduce the Gini coefficient of an economy while potentially reducing the work incentives of high-income earners?

Suppose the government provides a per-unit subsidy to the producers of a good. Under which of the following conditions will the consumers' share of the subsidy be larger than the producers' share?

I. Supply is perfectly elastic.
II. Demand is perfectly inelastic.
III. Demand is more elastic than supply.
IV. Supply is more elastic than demand.

The balance sheet of a banking system is as follows:

Assets: Reserves \$400, Loans \$1600
Liabilities: Deposits \$2000

Suppose the required reserve ratio is 15%, and the public does not hold cash initially. If a depositor withdraws \$100 cash from the bank, what is the maximum change in the money supply?

The table below shows the amount of resources needed to produce 1 unit of Computer and 1 unit of Clothing in Country A and Country B:

| | 1 unit of Computer | 1 unit of Clothing |
| --- | --- | --- |
| Country A | 10 units of resources | 5 units of resources |
| Country B | 8 units of resources | 2 units of resources |

Which of the following statements is correct?

Which of the following would lead to an increase in Hong Kong's Gross Domestic Product (GDP) for the current year?

Suppose the government increases the profits tax rate on all corporations. In the short run, how will the price level and real output of the economy change?

Suppose a binding price floor is imposed on agricultural products. Explain, with the aid of a diagram, how an increase in market demand may make the price floor ineffective.

Country A and Country B produce only two goods: Rice and Clothing, with the same amount of resources. Country A: 100 units of Rice OR 50 units of Clothing. Country B: 80 units of Rice OR 20 units of Clothing. (a) Which country has the comparative advantage in producing Clothing? Explain. (3.5 marks) (b) If the terms of trade is 1 unit of Clothing = 3 units of Rice, explain whether both countries will gain from trade. (2 marks)

Suppose a country experiences a continuous depreciation of its currency. Explain, with the aid of an AD-AS diagram, the effect of this depreciation on the price level and real output in the short run.

An airline based in Hong Kong (a resident producing unit of Hong Kong) purchases a brand-new aircraft from Boeing (a US company) for $100 million in 2023. In the same year, the airline provides passenger services and earns $120 million, of which $40 million is from Hong Kong residents and $80 million is from non-residents. Explain how the above transactions would affect Hong Kong's GDP in 2023 under the expenditure approach.

Consider the following balance sheet of a banking system: Reserves = $300, Loans = $700, Deposits = $1000. Suppose the required reserve ratio is 20%. (a) Calculate the excess reserves of the banking system. (1.5 marks) (b) If the public withdraws $100 of deposits from the bank and holds it as cash, and banks do not hold excess reserves, calculate the maximum change in money supply. (4 marks)

Suppose the production of a good generates a negative externality. (a) With the aid of a diagram, explain why the market equilibrium output is inefficient. (3.5 marks) (b) Suggest one policy the government can implement to achieve allocative efficiency in this market. Explain how it works. (2 marks)

The Hong Kong government provides free primary and secondary education for all children. (a) Explain how this policy can improve equity in terms of equalizing opportunities. (2.5 marks) (b) State and explain whether this policy is a progressive, regressive, or proportional measure in terms of its effect on income distribution, assuming it is funded by a flat income tax. (3 marks)

A cinema chain decides to reduce the price of movie tickets on weekdays by 20%. As a result, the number of ticket sales increases by 15%. (a) Calculate the price elasticity of demand for movie tickets. (1.5 marks) (b) Based on your calculation, explain how this pricing strategy affects the cinema chain's total revenue from weekday ticket sales. (4 marks)

Suppose an economy is suffering from high inflation. The central bank decides to implement a contractionary monetary policy by raising the required reserve ratio. (a) Explain how an increase in the required reserve ratio can help curb inflation. (3.5 marks) (b) Suggest one limitation of using monetary policy to curb inflation. (2 marks)

Suppose an economy is initially operating at its long-run equilibrium. (a) Suppose there is a sudden and significant surge in the global prices of crude oil. With the aid of an AD-AS diagram, explain the short-run effect of this oil price surge on: (i) the general price level; (ii) the level of output; and (iii) the unemployment rate. (8 marks) (b) To combat the economic situation in (a), some economists suggest that the government should increase its transfer payments to low-income households, while other economists suggest reducing profit tax rates to encourage private investment. (i) Contrast the short-run effects of these two proposed policies on the economy's aggregate demand (AD). (4.5 marks) (ii) Using the same AD-AS diagram in (a), show how the policy of reducing profit tax rates can help the economy return to its full-employment output level in the short run under a certain condition. State the condition. (5 marks)

Suppose the housing market of a city is initially in equilibrium. (a) The government decides to impose a price ceiling on rental housing. With the aid of a demand-supply diagram, explain under what condition this price ceiling would lead to a shortage of rental housing. (4.5 marks) (b) Suppose the price ceiling imposed is effective. (i) Show the deadweight loss on your diagram in (a). (2 marks) (ii) Explain how this price ceiling affects the consumer surplus, producer surplus, and social surplus of the rental housing market. (6 marks) (c) Instead of a price ceiling, suppose the government decides to provide a unit subsidy of \( s \) to landlords for every unit of housing they rent out. Explain, with the aid of a diagram, how this subsidy would affect the consumer surplus and whether it would result in deadweight loss. (5 marks)

Suppose an economy is experiencing a severe recession with a high unemployment rate. The central bank decides to conduct open market operations by purchasing government bonds from the public. (a) Explain, with the aid of a money market diagram, how the central bank's purchase of government bonds affects the interest rate in the money market. (5.5 marks) (b) Use the money creation/contraction concept to explain how the purchase of government bonds from the public by the central bank can lead to a multiple expansion of the money supply. State TWO assumptions required for the maximum potential money supply expansion. (5 marks) (c) Explain how the change in interest rate in (a) would affect the aggregate demand (AD), real GDP, and employment of the economy in the short run. (4 marks) (d) If the public prefers to hold more cash during a recession, explain how this behavior affects the effectiveness of the central bank's monetary policy in stimulating the economy. (3 marks)

Country A and Country B are two countries that produce only two goods: Smartphones (S) and Clothing (C). They use labor as the only factor of production. The table below shows the maximum amount of each good that can be produced per unit of labor in each country:

| Country | Smartphones (S) | Clothing (C) |
|---|---|---|
| Country A | 20 | 10 |
| Country B | 8 | 16 |

(a) Explain which country has a comparative advantage in producing Smartphones. (4 marks) (b) Find the range of terms of trade (in terms of Clothing per unit of Smartphone) that is mutually beneficial to both countries. (2.5 marks) (c) Suppose the actual mutually beneficial terms of trade is 1 unit of Smartphone = 1.2 units of Clothing. (i) Explain how Country A gains from trade. (3 marks) (ii) If Country A allocates 100 units of labor to production, calculate Country A's total consumption of Clothing if it decides to trade 400 units of Smartphones with Country B. (3 marks) (d) Suppose Country B's government imposes an import tariff of 0.3 units of Clothing on every unit of Smartphone imported from Country A. (i) Explain the effect of this tariff on the volume of trade between Country A and Country B. (3 marks) (ii) How will this tariff affect the economic welfare of Country B as a whole? Explain. (2 marks)