2020-2021

MOCK EXAM
S.6 ECON
PAPER 2
Name
Good Hope School Class
Mock Examination 2020 – 2021 Class Number
Block Number
S.6 Economics
Paper 2
Marker’s
Question-Answer Book Use Only
Question No. Marks
2 hours and 30 minutes
This paper must be answered in English 1

INSTRUCTIONS 2

(1) After the announcement of the start of the 3

examination, you should first write your Name, Class,
Class Number and Block Number in the space 4
provided on Page 1.
5
(2) This paper consists of TWO sections, A and B.
Answer all questions in both sections.
6
(3) Write your answers in the spaces provided in this
Question-Answer Book. Do not write in the margins. 7
Answers written in the margins will not be marked.
8
(4) Graph paper and supplementary answer sheets will be
supplied on request. Write your Name, Class, Class 9
Number, Block Number and the question number in
the space provided on each sheet, and fasten them
with string INSIDE this book.
10

(5) The diagrams in this paper are not necessarily drawn

to scale.

(6) No extra time will be given to students for filling in

Name, Class, Class Number and the question number
after the ‘Time is up’ announcement.
Total

S.6 Economics (Paper 2) Mock Exam 2020-2021 Q-A Book Page 1 of 18

SECTION A (44 marks)
Answer ALL questions in this section and write your answers in the spaces provided.

1. Evaluate if each of the following statements is true.

(a) Mr Chan owns his residential flat. The property prices have been falling in recent years.
The opportunity cost of living in his flat remains the same. (3 marks)

(b) Expansionary fiscal policy raises the aggregate output level of an economy in the long run.
(4 marks)

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2. The following table shows the input and output relationship of a stationery producer.

Capital (units) Labour (units) Average Product (units)

2 3 10
2 4 15
2 5 20
2 6 18
2 7 16

(a) Name and explain the economic phenomenon illustrated by the data. (6 marks)

(b) Name TWO examples of variable costs of this stationery producer apart from the one
implied by the data. (2 marks)

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3. Airport Authority Hong Kong is wholly owned by the HKSAR Government. It generates its own
revenue such as airport charges, airside support service franchises and terminal commercial
revenue.

(a) What kind of public enterprise does Airport Authority Hong Kong belong to? State TWO
advantages of providing airport services by a public enterprise instead of a private
enterprise. (3 marks)

(b) Airport Authority Hong Kong is the sole provider of Hong Kong International Airport.
Apart from the reason of being the monopolist, name TWO other reasons that can give
rise to a monopoly. (2 marks)

4. Syria is facing a serious food problem. Many people have to queue up for hours in order to buy
bread, which is their staple food.

(a) Recently Russia reduces the exports of wheat to Syria. Assume that the price of bread is
regulated, so it cannot change. Explain how the measure of Russia would make the bread
problem in Syria even worse with the aid of a diagram. (5 marks)

(b) The Syrian needs to use a smart card provided by the government in order to purchase one
bag of bread every day. Which function of price is hampered? Explain. (2 marks)

S.6 Economics (Paper 2) Mock Exam 2020-2021 Q-A Book Page 4 of 18

 0

S.6 Economics (Paper 2) Mock Exam 2020-2021 Q-A Book Page 5 of 18

5. (a) What is the real return rate of holding money? (1 mark)

(b) In Country A, there is an increase in the number of people migrating to other countries.
Explain why the unemployment rate of the country can still decrease. (4 marks)

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6. Below is the balance sheet of Economy A.

Assets ($ million) Liabilities ($ million)

Reserves 600 Deposit 2 000
Loans 1 400

Initially, the public hold $500 million cash, and there are $100 million excess reserves in the
banking system.

(a) Calculate the monetary base of Economy A. (1 mark)

(b) Suppose the public withdraw $110 million from the deposits, remit 80% of the money
withdrawn overseas and put the rest in the safety box of a licensed bank. What is the
maximum possible amount of money supply of the economy? Show your workings.
(4 marks)

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7. The amount of resource in Country A is twice of that in Country B. Both countries allocate 75%
of their resources to produce rice and the remaining resources to produce clothing. The following
are the total output of both countries.

Rice (units) Clothing (units)

Country A 150 30
Country B 100 10

(a) Explain whether Country B has

(i) an absolute advantage in producing rice.

(ii) a comparative advantage in producing rice. (5 marks)

(b) What is the maximum transportation cost such that trading rice is no longer mutually
beneficial for the countries? Explain. (2 marks)

END OF SECTION A

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SECTION B (60 marks)
Answer ALL questions in this section and write your answers in the spaces provided.

8. Due to the recent travel restrictions, a lot of Hong Kong people purchase goods from overseas
online.

The table below shows the change in exchange rate between the US Dollar (USD) and Japanese
(JPY).

21 Feb, 2020 USD 1 = JPY 111.96

3 Jan, 2021 USD 1 = JPY 103.049

(a) Suppose there was no change in the price (in terms JPY) of Japanese spider crabs during
the above period. Based on the above information, under what condition would the total
expenditure (in terms of HKD) decrease? Explain your answer with the aid of a diagram.
(7 marks)

(b) The Japanese Government has suspended the visa exemption for Hong Kong until further
notice. Assume that Hong Kong people need to apply for visa to enter Japan when the
Summer Olympics takes place in Tokyo in July. Using the law of demand, explain how
the average length of stay would change. (4 marks)

(c) In 2020, the average annual salary for professional athletes in Japan range d from
JPY 3,268,087 to JPY 5,333,554. Give TWO reasons to explain the income
inequality among athletes. (2 marks)

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9. Below are some macroeconomics data about Hong Kong in 2019.

Nominal GDP growth rate Percentage change in implicit GDP deflator

1.1% 2.4%

(Source: Census and Statistics Department, HKSAR Government)

(a) Based on the Quantity Theory of Money, how did the money supply change in 2019 would
the above data be resulted? (3 marks)

(b) Miss Chan, an owner of a fashion store, sets the prices of her products with reference to
the implicit GDP deflator. She once increased the price of a pair of leggings from $300 to
$310. The quantity sold in December decreased from 200 pairs to 180 pairs.

(i) Calculate the arc elasticity of demand. Show your workings. Correct your answer
to two decimal places. (2 marks)

(ii) Give TWO reasons that would increase the elasticity of demand of the
leggings. (2 marks)

(c) Assume the following persons do not expect any inflation in 2019. Explain if they will
gain or lose in their respective situations.

(i) Uncle John purchased the silver bond the interest rate of which is linked to the
inflation rate. (2 marks)

(ii) Miss Chan borrowed a mortgage loan at a fixed nominal interest rate of 6% per
annum. (2 marks)

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10. COVID-19 has been affecting the Hong Kong economy since 2019.

Source A: Percentage change in GDP in real terms in Hong Kong

Percentage change in GDP in real terms

Year-on-year % change in the original GDP series

Quarter-to-quarter % change in the seasonally adjusted GDP series

(Source: Census and Statistics Department, HKSAR Government

https://www.statistics.gov.hk/pub/B10300012020QQ03B0100.pdf)

Source B: Government COVID-19 vaccine procurement

The Government has been putting up effort to procure vaccines for protecting members of
the public against COVID-19. The Government has entered agreements with three vaccine
providers and the amount of doses procured is sufficient to cover the entire Hong Kong
population. Members of the public can receive the vaccines on a voluntary basis free of
charge since the second quarter of 2021 or earlier if available.

(Source: Press Release, HKSAR Government

https://www.info.gov.hk/gia/general/202012/12/P2020121200031.htm?fontSize=1)

Source C: Selected Relief Measures by the HKSAR Government

Measure 1: In June 2020, the Cash Payout Scheme was launched to disburse HK$10,000
to each Hong Kong permanent resident aged 18 or above. Over 6.5 million
Hong Kong residents were entitled to this scheme.

Measure 2: In December 2020, the Government announced that holders of relevant food
licences, e.g. general restaurants and light refreshment restaurants, are eligible
for a one-off subsidy ranging from $100,000 to $400,000 according to the
areas of their premises.

(Sources: HKSAR Government

https://www.cashpayout.gov.hk/eng/index.html
https://gia.info.gov.hk/general/202012/17/P2020121700728_356691_1_1608213058401.pdf)

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 Source D: Opinions on the Government measures

Kenny I was delighted that I could register for the Cash Payout Scheme
An accountant electronically through internet banking. I did not prefer returning the
paper registration form to the bank branches or the post offices.

Paul The Financial Secretary consulted the public on the Budget 2021-22
A restaurant owner in January. I voiced my opinion and suggested that the Government
should promote tourism. When the pandemic is over and it is safe to
travel, the tourists will return. My business will then recover.

Fanny It is hard to find a job this year. I proposed that the Financial Secretary
A fresh university should provide more education subsidy in the fiscal year 2021-22. It is
graduate easier for me to afford another university programme to improve my
employability in the future.

(a) Refer to Source A. Name the phase of the business cycle Hong Kong was in from the
second quarter of 2019 to the second quarter of 2020. List TWO other economic
phenomena in this stage of the business cycle. (3 marks)

(b) Refer to Source B.

(i) Explain whether the vaccines that the Government procures are public goods.
(3 marks)

(ii) Using the concepts of externality and economic efficiency, explain why the
government is committed to spending a huge sum money to provide COVID-19
vaccines to all Hong Kong people. (6 marks)

(c) Refer to Source C. Assume the Hong Kong economy experienced a deflationary gap in
mid-2020. Explain how the two measures would affect the deflationary gap with the aid of
a diagram. (8 marks)

(d) Refer to Source D. Explain why Kenny chose to register for the Cash Payout Scheme
electronically by applying the concept of opportunity cost. (2 marks)

For part (e), candidates are required to present their answer in essay form. Criteria for marking
will include use of sources and economic theories, relevant content, logical presentation and
clarity of expression.

(e) With reference to the above sources and your own knowledge in Economics, evaluate the
impacts of the two government measures and the two suggestions for Budget 2021-22 on
the Hong Kong economy including:
 Fiscal balance
 Balance of payments
 Income inequality
 Other economic variables apart from those discussed in part (c) (14 marks)

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 END OF PAPER

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